What is the point of Philip Hammond? Most chancellors have an agenda, but it’s hard to discern any purpose or direction from the current one. Gordon Brown’s project was to oversee the largest expansion of government spending in peacetime history — which he achieved, albeit with ruinous results. George Osborne spoke about trying to wind this programme back. The results were decidedly mixed, but at least he had an idea about what he sought to achieve. Mr Hammond, by contrast, has spent his time in the brace position preparing for Brexit.
When he delivers his Budget on Monday, he might have to admit that the country does not seem to be quite so worried. Companies have been hiring at a rate never seen before. Youth unemployment is at an all-time low. Salaries are (finally) rising faster than inflation. The Office for Budget Responsibility, which has been almost as gloomy as Mr Hammond in its outlook, will have to admit that it has yet again got it wrong and that the public finances are in healthier shape than it has assumed. Income inequality is near a 30-year low, and corporation tax receipts are churning in at a rate that has astonished the Treasury.
So it’s time for some innovation, some policies that might speed the recovery along. Instead Mr Hammond — we are told — will follow Mrs May’s lead and declare that austerity is over. He will celebrate this by resuming the Brown project: expanding government spending, increasing the national debt and lifting the tax burden (already at a 30-year high) even higher. It’s a very strange form of conservatism.
For a while, of course, a government can get away with increasing spending without raising taxes — it simply borrows more. That might be a reasonable thing to do in the depths of a recession. But if you carry on indefinitely the debt becomes a burden, and the cost of servicing that debt rises all the time. The government already spends more on debt interest than on defending the realm or educating children — and that’s with interest rates still near 400-year lows. With long-term rates now rising, the government’s debt situation could yet return to critical.
What we don’t yet have — mercifully — is a recession. But as the Bank of England likes to point out, it’s been 11 years since the last one and we’re overdue. Recessions and booms have been an integral part of our economic system for generations and there is no reason to believe that the economic cycle has been abolished. If things are going well now, the government ought to try to balance its books and prepare for the inevitable storm. With chances rising of a no-deal Brexit, there may soon be economic turbulence ahead of us. The remedy for this would be stimulatory tax cuts, yet the Chancellor seems to have put his faith in borrow-and-spend.
In cabinet meetings, Mr Hammond stays silent while other ministers list ideas for growing the economy. His own initiatives tend to involve raising taxes on unsuspecting groups such as the self-employed. The great danger is that his lack of economic vision or leadership makes it harder for voters to see why they should not vote for Jeremy Corbyn. If higher taxes and higher spending is the best way to grow an economy — as the policies Mr Hammond will announce on Monday will suggest it is — why not go for a party that truly believes in it? If the Tories no longer believe in letting people keep more of their money, what’s the point?
Mr Hammond had been originally due to give his Budget speech next Wednesday, until his officials pointed out that this was Halloween and would invite unhelpful headlines about Hammond’s House of Horrors. The civil servants involved in drawing up his Budget say it’s a dud and that it will continue a soft drift towards higher taxes without any kind of compelling organising narrative. It will emphasise what is already painfully obvious: that the Tories have no ideas besides Brexit and they can’t even get that right.
What Mr Hammond should be saying on Monday is that Britain stands ready to walk away from talks with the European Union, and that while no one actively seeks a no-deal Brexit, it makes sense to announce what it would involve: that Britain would use its new powers to unilaterally eliminate tariffs on industrial imports from the EU and the rest of the world, embracing global free trade; that capital gains tax would be cut, and that new investment would qualify for complete tax relief. Tony Abbott, the former Prime Minister of Australia, points out in his article this week that no-deal Brexit would mean that Britain would trade with the world as Australia does now: through World Trade Organization rules.
Instead, Mr Hammond has been going in the opposite direction, trying to stop Whitehall departments getting ready for a no-deal Brexit by refusing to authorise spending on the necessary preparations. He is turning out to have been badly miscast as chancellor, a deep disappointment at a time when the party and country needs strong economic leadership. We can only hope that this will be supplied by his successor.
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