Every new Chancellor wants to inherit a surplus at home and see benign conditions abroad, or at least stable ones. Philip Hammond enjoys neither. At home, his predecessor fixed part of that famous roof – both when the sun was shining and when it was not – but not all of it. George Osborne got the deficit down from seven per cent in 2010 to two per cent this year, but it still came in at about £70 billion. A year ago, he had a chance to try to meet his surplus target earlier. Instead, he decided to relax departmental spending. His successor thus had little room for manoeuvre yesterday.
Abroad, the United States has a President-elect who tore up the rule book in winning his party’s nomination and the country’s election. There is no reason to think he won’t continue to do so once in office, and that alone suggests that conditions abroad may not be benign and could be more unstable than they already are. Nearer home, France has a presidential election next spring and Germany a federal election next autumn. The question for both countries is not so much whether there will be a Trump-style revolt but how big it will be. Italy’s Prime Minister may be gone within a fortnight if he loses a constitutional referendum. The country’s banks are in trouble.
There is a questionmark over the future of NATO. And another less successful international body has lost a member – namely, the EU, which brings us back to Hammond. The Chancellor was not only constrained in which taxes he could cut and what spending he could increase, but found himself so restricted just when he needs maximum freedom to respond to the unexpected – in the aftermath of the biggest political decision that Britain has taken since it went to war in 1939. The OBR is probably right to say that the economy will slow and borrowing will rise in consequence. But it cannot be sure, and neither can anyone else. Forecasting a cost of Brexit is bunk.
Hammond failed to project a sense of what sort of Britain the Government wants after we leave. To do so should not be confused with declaring Theresa May’s negotiating hand. Beginning to plan what kind of regulatory regime the country needs in the longer-term is entirely consistent with leaving EU regulation in place in the short-term after we depart – as planned in the Great Repeal Bill. He might have been able to add to what the Prime Minister said about business taxes in her recent speech at Mansion House. Tariffs are more tricky, because of uncertainty over our relationship to the customs union, but even here there was a public case to be made for free trade.
The Chancellor was more successful in making the most of his limited headroom. It is impossible to take his new fiscal framework too seriously, if only because the previous one lies in ruins. But since he settled on a more relaxed regime, what remained to be settled was whether yesterday’s measures would focus, as he wanted, on infrastructure and productivity, or look too at easing the plight of the JAMs, as Downing Street desired. Hammond seems to have won out. Fuel duty will be frozen for a seventh year running, but no rise in personal allowances was announced yesterday. The big piece of good news for JAMs was the easing of the Universal Credit scaleback.
The OBR described the statement as “a modest infrastructure spending giveaway over the next five years”, and in this at least they are right (unless the Chancellor’s plans change). There is to be a National Productivity Investment Fund, more money for roads and broadband, and a new fund for housing – though it won’t be clear where many of the new homes will go until after Sajid Javid produces his White Paper. Hammond made his money in building, and his plans reflect this experience. On the tax rise side, watch for protests against the rise in insurance premium tax. It will be said that the Chancellor is giving to motorists with one hand and taking from them with the other.
One can object to, say, the ban on letting fees – taking the same hostile view of it as the Government did until yesterday. Or one can cheer the limited win for Iain Duncan Smith over Universal Credit tapers, and his view that people who work while receiving the payment should not be dismissed as scroungers. But the truth is that the Autumn Statement has changed very little: it was, as predicted, essentially a suck-it-and-see exercise. Perhaps the only substantial transformation is in the style and tone of the Treasury itself. Osborne would have made the most of the statement, saving an announcement for the very end. Hammond’s was that he intends to abolish it!
Less politiking and fuller graphs (the one that shows the distributional effect of the measures is back). Dry asides rather than scripted jokes (unless one is to count yet another hit from a colleague against the Foreign Secretary). Fewer stagey opportunities to shine in the future – perhaps the Chancellor will take the next logical step and abolish the Budget itself – and not a dividing line in sight. But for a man who has form in making Puddleglum the Marsh-Wiggle look like an optimist, Hammond could almost have been described as jovial yesterday. As we said then, perhaps his good cheer is a consequence is being in a job he may think he was born to do.
There could be another explanation. The economy is the fastest-growing in Europe. Employment is at a record high. The recession that Osborne predicted hasn’t happened. Indeed, the punishment budget that he promised has not been delivered. Instead, we had Hammond’s unspectacular giveaway. At least for the moment, the Chancellor has reason to smile, as do some of the rest of us. So let Big Phil lead us in the chorus: reasons to be cheerful – one, two, three. P.S: if he’s looking for a reason to relapse into gloom, he will ask himself again where the appetite is on the Conservative backbenches to make the spending cuts without which he hasn’t a prayer of hitting his deficit target.