ICAEW UK Economic Forecast: A Need for Unpopular Policies

ICAEW has published its quarterly economic forecast for the UK. There are no startling findings but it is a useful overview nonetheless. They lead with five main findings:

The economy is forecast to grow by 1.7% in 2017
With Brexit uncertainty, business investment will be weaker in 2017
The labour market is tight but stable
Real income per household will go down and inflation outstrips wage growth
Longer-term fiscal risks are not being tackled

For me it is this last point that is most interesting. Although it feels like good housekeeping to continue to reduce the deficit, the cost of government borrowing is so low that in real terms the consequences of not doing so are not that great in the short term.

The election result has led the Government to drop key policies from the Queen's speech because of perceived lack of support. Where these policies concern age-related public spending liabilities, it feels as though we are back where we started with our heads firmly in the sand.

By way of an example, the proposal to place a charge on the value of people's homes when care in the home is provided to dementia sufferers, is easy to vilify. Pity the elderly when they are ill and confused and their homes are taken away. Why should they be treated differently to someone receiving expensive cancer treatment on the NHS?

But the care has to be funded by someone, and the next generation is already suffering with student loans and the unaffordable costs of housing. If, as looks likely, they will be the first generation to be worse off than their parents, why should they fund the care of their wealthy elders who did nothing to deserve the house price bonanza of the last 30 years? Or to take another example, why should they pay for the triple lock on pensions, when they themselves have no such security?

There is an urgent need for cross-party consensus on a long-term strategy here. It is all too easy to score political points from what can be depicted as uncaring social policies, when the reality is that no policy that addresses the underlying issue of an aging population is going to be popular.