Peter Franklin is Associate Editor at

At this point in time the most important fact in British politics is that we’re at the beginning of a parliament.

I know it doesn’t feel that way. The atmosphere is one of impending doom, the end not just of a parliament, but of a government – indeed, the end of days.

Of course, that’s only if your head is permanently stuck up the Westminster bubble – because out in the real world there’s still a country to run. And, given the Parliamentary arithmetic, there’s only one party in a position to run it – the Conservative Party.

A wave of scandal-induced by-elections could yet change that arithmetic, but let’s daringly assume a scenario in which that doesn’t happen (much). Whether under Theresa May or a new leader, the Conservatives are set to remain in power.

With only six months on the clock, they also have time – time to make the difference that May promised when she first became Prime Minister, but failed to make real in the election campaign.

It’s a failure that has continued ever since. Her speech at Party conference was so desiccated that she nearly choked on it. But even that was better than the Chancellor’s soul-deadening effort. I know that ‘expire’ isn’t the antonym of ‘inspire’ – but for Phillip Hammond it might as well be.

Make no mistake, this month’s Budget is his last chance. Either he sets the Government on a meaningful course or he’ll find himself on an express journey to the backbenches. Note also that announcing an ‘end to austerity’ isn’t good enough. Merely admitting your predecessor’s failure does not amount to a success of your own. Rather, you need to put something positive in its place.

He should begin by restructuring the fundamentals of fiscal policy. Capital and current expenditure need to be separated out completely in our national accounts. The existing distinction between Departmental Expenditure Limits (DEL) and Annually Managed Expenditure (AME) doesn’t do this – in fact, it helps to confuse matters.

When their finances deteriorate, governments often slash capital spending to give the impression of fiscal control. Delaying a piece of infrastructure that hasn’t been built yet (and thus no one has the use of) is politically more acceptable than raising taxes, axing jobs, freezing wages or cutting services. All of those involve things people have already got – and they don’t like it when you take them away.

However, to reduce investment in infrastructure or R&D is to take away from the future – just as surely as running up unsustainable debt does. Indeed, skimping on the foundations of our future economic productivity should itself be seen as a form of debt. To describe such cuts as a ‘saving’ is every bit as bogus as was Tony Blair’s use of the word ‘investment’.

Furthermore, you don’t have to be hardcore Keynesian to realise that it makes sense to spend on infrastructure when the cost of borrowing is low and when there’s plenty of spare capacity in the construction sector.

Sticking to Labour’s plan to cut capital expenditure was the Coalition Government’s original sin – one that also helped cover up its lack of control over non-capital spending. Phillip Hammond should make amends by separating out the two kinds of expenditure. At the very least they should be subject to separate budgetary processes. Better still they would be overseen by separate Whitehall departments – with a long overdue infrastructure ministry being created to handle the capital budget.

Free from the Treasury straitjacket, capital budgeting could be done on a properly long-term basis. Target levels of multi-decade investment could be specified over broad categories such as transport, energy, science etc. Any failure to meet those targets would be seen as a shortfall not a saving – and would carry a political cost.

Of course, not every item of capital spending is a wise one. Not spending money on white elephants really can be called a saving. Unfortunately, we appear to be fully committed to a pair of likely pale pachyderms – Hinkley Point C and HS2. However, there is time to impose limits on a possible third member of the herd: the expansion of Heathrow. Hammond should make it clear that there will no blank cheques from the Government for this one.

Let’s also stop another shocking waste of resources – the so-called Help to Buy (HTB) policy. HTB provides finance (for instance through equity loans and mortgage guarantees) to people struggling to raise the capital to buy a home. In other words, it creates extra demand in a market where the main constraint is one of supply. Anyone with the most basic grasp of economics would realise that its likeliest effect is to push up prices even higher and – according to the Resolution Foundation – this is exactly what has happened. Not so much Help to Buy as Help to Speculate.

Since 2013, HtB has pumped in almost £7 billion with the Government committed to a further £10 billion. In theory these sums are recoverable, but because they’re doing more harm than good they represent a grotesque misallocation of financial clout.

There is a much better way forward, which is for the Government to buy up land at agricultural use value, grant itself planning permission and then sell the land at an appropriate premium to those most able to build homes on it. If legislation is required to give the government the necessary powers then it should be introduced without delay.

Meanwhile, the Chancellor should announce a comprehensive review of land taxation. Rents extracted from the productive economy by property speculators and land monopolists are a drag on growth not a contributor to it. They should be taxed accordingly. As an interim measure, the Chancellor should introduce a surcharge on investment properties where the liability would be reduced in proportion to other taxes paid by the owners and/or occupants of the property in question. This would send a signal that Britain is open to investors who want to live and work here, but not to absentee landlords.

The surcharge should also cover ‘options’ to buy land (a means by which the land supply is sewn-up by developers, who have no interest in boosting housing supply to the point at which prices go down). In other words, Government should build up a ‘national land bank’ while disrupting the private land banks that currently dominate the house building sector.

This would take money of course – but money used by the Government to create an objectively valuable asset i.e. strategically-located land with planning permission. In a sane world this would appear on the national accounts as a credit not a debit – especially as the Government would be striving to sell the land as soon as it was required for development.

Perversely, the money currently made available through Help to Buy does not appear in the deficit figures (a big reason why the Government is so keen on the idea). This, however, is a trap of its own making – a consequence of fiscal rules that make increasingly less sense.

Failing to properly distinguish capital expenditure from current expenditure has many perverse consequences. It is a pointless obstacle to the investment needed not only to solve Britain’s productivity problems, but also to save our property owning democracy.

These are interesting times. Capitalism is in crisis and the hard left is close to power. To rise to the challenge, we need bold reform – not least a ‘Marshall Plan’ to bring home ownership to an excluded generation (the elements of which I’ve only begun to describe here).

On the other hand, Phillip Hammond may decide that big thoughts and radical action are not for him; in which case the best thing he could announce is his immediate resignation.