No one knows what Fiscal Philip Hammond’s policies are — but he must show he wants to make people’s lives better
THE week before a Budget is always a fraught time inside government.
Once, when Gordon Brown was Chancellor, negotiations between the Treasury and the Department for Work and Pensions went so far beyond the print deadline that when the document was presented to the Cabinet, it fell apart because the glue that bound the pages had not had time to set.
Hopefully, ahead of next week’s Budget, Philip Hammond will conclude negotiations a little sooner.
Every Budget should be seen as an opportunity to change things for the better, and what Hammond announces next Wednesday will be a crucial test of the Government’s ability, as it deals with Brexit, to also deliver reforms that improve life for people at home.
In his first Budget, Hammond got it all wrong. Concerned that the rising number of people in self-employment was reducing tax receipts, he increased their National Insurance Contributions.
Theresa May warned him repeatedly that he was making a mistake, but the Chancellor insisted on going ahead and the inevitable occurred. Conservative MPs rebelled and he dropped the policy and the tax receipts that came with it.
Because I was one of those who advised against the tax rise, Hammond’s team briefed the newspapers that I was “economically illiterate”.
Now, six months later, as ministers grapple with how to build more houses, Hammond appears to be at it again.
On Saturday his team told The Sun’s columnist James Forsyth that Theresa May, who used to work at the Bank of England, is also “economically illiterate”.
This seems to be Hammond’s favourite charge when he feels under pressure.
But we should assess the Chancellor’s own economic literacy — because, after more than a year at the Treasury, his economic policy remains unclear.
He likes to think of himself as “Fiscal Phil”, the guy who balances the country’s books. But the public finances are only one part of the Chancellor’s job.
The Chief Secretary to the Treasury is there to keep spending under control. The Chancellor is supposed to have a wider vision for the country’s economy. With Hammond do we have a Chancellor or two Chief Secretaries?
Even on the budget deficit, it is not clear that Hammond is correct. As many economists and Conservative thinkers have said, there is no need to make a fetish of running a surplus every year or even most years.
We need sustainable public finances, and we need to reduce debt as a percentage of the size of our economy.
But there is a strong case for borrowing more to fund infrastructure projects that will deliver a return on our investment through improved productivity.
As Conservative MP Nick Boles argues, Britain’s “urgent problem is that wages aren’t growing . . . because productivity isn’t growing . . . because our rate of investment is too low.”
That is why, when I worked in government, I argued for a new fiscal policy that would increase investment.
Those on my side of the argument made some progress. The budget surplus target date was delayed, a National Productivity Investment Fund was established, and the Government now has a long-term target that three per cent of the country’s wealth should be spent on research and development.
But these successes were limited, and each was opposed or watered down by Fiscal Phil.
He dismissed his critics as “Keynesians”, a reference to followers of the economist John Maynard Keynes. But among them is Sajid Javid, the Thatcherite minister who wants to borrow more to fund the most urgent thing our country needs, which is more housing.
Javid is no Keynesian, and his proposal is right.
For the last decade, monetary policy has made those with assets richer and those without assets poorer, by keeping interest rates super-low and printing half a trillion pounds of new money.
But what is Hammond’s view of the correct balance between fiscal and monetary policy?
He says he wants to prevent the return of socialism, as proposed by Jeremy Corbyn, but he stops any proposals that would improve economic justice.
He blocks any serious measures that curb excessive corporate pay. He opposes policies to improve the way companies are run. And he is against any kind of worker representation in corporate decision-making.
He will not support significant protections for people working in the precarious “gig economy”, and he lacks the ambition to create a comprehensive national retraining programme as technology eliminates many existing jobs.
What about economic reforms? Is he going to act on the Helm Review, which showed how government policies have made our energy costs uncompetitive?
Will he do anything about the systematic over-reward for investors that rips off consumers by increasing the cost of important infrastructure, like airports?
Will he back the industrial strategy led by Business Secretary Greg Clark? Is he up for making Britain a world leader in the regulation of tech?
Instead of being bold in seeking solutions to these challenges, I fear Philip Hammond’s instinct is to maintain existing policy, regardless of its quality.
This must not be mistaken for conservatism. Nor is it down to a careful analysis that concludes the status quo is best.
I worry it is because the Chancellor lacks a burning desire to change people’s lives for the better, and the imagination to see possibilities beyond how the world works today.
I hope that next week he proves me wrong.
- Nick Timothy is a former joint chief of staff to Theresa May
