As the British budget looms, the blight of Brexit is never too far away

The chancellor faces a financial headache amid a tumultuous time for the Tories and ahead of next month’s vital Brexit summit, writes Paul Wallace.

FEW British budgets have mattered as much as the one that Philip Hammond will deliver to the House of Commons today. The chancellor of the exchequer must shore up Theresa May’s perilously shaky government ahead of a vital Brexit summit of European leaders in mid-December. At the same time Hammond has to keep a grip on the public finances. But the gravest challenge he faces is economic: Britain’s persistent productivity blight.

Productivity — output per hour worked — is the mainspring of economic growth. In the decade before the financial crisis of 2007-08 productivity was increasing in Britain by just over 2% a year, outpacing the average for the other economies of the G7. But since the crisis British performance has been dismal. Although productivity jumped in the third quarter of 2017, prolonged weakness means that it is barely higher than its pre-crisis peak a decade ago. The recovery in GDP has been driven overwhelmingly by more labour input, a source of growth that is running dry — not least since the vote to leave the European Union delivered a message to curb immigration.