As I See It
End of austerity? More like the death of prudence
Many of the announcements will be welcomed because they will prove popular, which does not mean they are bad choices. Far from it, the increased spending of £2.7 billion to make Universal Credit workable is compassionate, while the investment in housing infrastructure, and revitalising high streets tackles some key problems.
However, it is easy to please when you are giving away other people’s money. There was no clear narrative about what Theresa May’s government is for. Managerialism continues to dominate – and that fails to excite or inspire.
The numbers show that the Chancellor is in fact giving away the future tax receipts of our grandchildren. He’s funding his largesse by abandoning any pretence at balancing the budget and aiming for a surplus to help pay down debt.
He has shifted the government focus from deficit reduction to deficit stability, with a regular deficit of £20bn, or around 1% of GDP, using the growth in the economy to provide a mixture of increased public spending and minor tax cuts at the margins.
The UK economy has its problems, but it continues to create jobs and these in turn are creating growing tax receipts and funding consumer spending. The OBR predicts a further 800,000 jobs by 2023, which makes the Treasury’s scaremongering about Brexit look completely misplaced. Or is it that Hammond is intentionally giving himself more fiscal manoeuvrability than the £15bn he is admitting to?
Hammond could go further, but could he be holding back on cutting business taxes to avoid upsetting the EU negotiators who fear a dynamic low tax economy on their doorstep? And if there is a good Brexit deal, how will he use that £15bn? More public spending, reducing the deficit or cutting some taxes?
Did Hammond deliver the end of austerity? He certainly changed Theresa May’s wording, from it being “over” to us moving towards it. But it is questionable if austerity ever really happened in the UK. What we have endured is selective austerity, a shift in taxation and public spending priorities which has seen public services such as the NHS, schools and foreign aid protected while others, especially local government, defence and policing have been cut significantly.
It should be remembered that VAT was raised from 17.5% to 20% by the Conservative and Liberal Democrat coalition in 2010 as a response to the “great recession”. For me the end of austerity-lite will not have been delivered until VAT is cut back to its previous level.
The euphoria amongst Tory backbenchers celebrating a few marginal tax cuts and some politically-astute spending announcements will eventually subside and it will dawn on people that much of what Hammond announced could just as easily have been delivered by Gordon Brown or Alistair Darling. Taxes are continuing to rise overall under the Conservatives – the highest since 1987 – and we are more regulated and over-governed than we were then.
The UK still needs a Chancellor who will conduct a root and branch reform of the tax code. That role is not in the nature of Philip Hammond, and until the current or future Conservative leader finds someone with the right CV the party will continue to feel nervous because it is simply getting by, rather than inspiring people to excel – and vote for it.