Will Hammond seize his golden opportunity?
There’s never been a better time to flatten tax, build infrastructure, abolish tariffs or curb pensions
Dull, boring, uncharismatic, safe, loyal, unflashy, robotic, riskaverse, plodding, unassertive. These are just some of the words used to describe Philip Hammond, who with his first big set piece Autumn Statement pending makes his maiden speech next week as Chancellor to the Conservative Party annual conference.
If any of these things are true of him, then good, because we have all had quite enough of pushy, selfserving Chancellors whose main purpose in public life seems to be that of furthering their political ambitions. Policy would be routinely tailored to these ends. Competent management of the nation’s purse strings all too frequently took a back seat.
Master of this particular genre of chancellorship was Gordon Brown, whose overarching motives in wanting to do well by the economy and society at large were no doubt honourable enough, but who ended up obsessively dipping his hands into virtually all aspects of government.
Along the way, he seemed not to notice that the public finances were going to hell in a handcart, or rather chose to hide it behind a facade of bewildering fiscal rules and ruses. After an encouraging start, George Osborne turned out to be little better.
It is very much to be hoped that “spreadsheet Phil” is different. Both Brown and Osborne were driven by pursuit of the “big idea”. They weren’t satisfied with merely running the economy, but became in effect surrogate prime ministers who basically ran, or certainly attempted to run, the entire country. Almost as much time appears to have been spent on political intrigue as the affairs of state.
By his own admission, Mr Hammond has no such political ambition; if his aides are to be believed, he aspires to nothing more than effective direction of the economy and the public finances. This would indeed be a refreshing change.
Yet for every chancellor, there comes a light bulb moment, the point at which he asks himself, “do I want to be remembered only for the dispiriting business of deficit reduction and austerity”, or in Brown’s case, fiscal prudence, “or might this instead be the chance to go down in history as one of the great, reforming Chancellors of the age.” For Brown, it was expansion in public services and welfare that drove him. For Osborne it became the Northern Powerhouse.
What could it be for Hammond? Dealing with the deficit is still a work in progress – so much so that the new Government has already bowed to reality and abandoned Osborne’s binding target of a budget surplus by the end of the parliament.
Yet in a number of other respects Osborne has left the economy in surprisingly good shape, with something close to full employment and a respectable rate of growth. Just this week, the World Economic Forum ranked Britain the seventh most competitive economy in the world, up three places on last year and the UK’s highest ranking.
Hammond is therefore blessed with a following wind, even if his hands are somewhat tied by a wafer-thin Tory majority and the all-consuming process of Brexit. So here in no particular order are a number of areas where the new Chancellor could make his mark.
All chancellors start with the goal of tax simplification yet, in pandering to favoured lobbies, buying votes and attempting to balance the books they almost invariably end up with a system even more complicated and subject to arbitrary change than the one they inherited.
Providing tax certainty and simplicity must therefore be a cornerstone policy of the new Government, with a clear road map towards a flatter, more coherent tax system that promotes business investment and wealth creation. All capital gains tax on business start-ups should be removed in pursuit of a more entrepreneurial society.
Once Brexit becomes a reality, the Chancellor should aim to make Britain into a truly open, free trade, “export processing zone” by abandoning all monetary tariffs on non-EU goods alongside those from the EU. Since these tariffs raise “just” £3 billion a year, they seem to offer only very limited protection for UK industry anyway. It would also amount to a worthwhile tax cut.
In a broader sense too, Hammond has a golden opportunity to boost the economy – whether by cutting the overall tax burden, or by increasing spending. With interest rates close to zero, there could scarcely be a better time to borrow for infrastructure renewal. We are past the stage where doing so would harm the Government’s fiscal credibility.
A truly courageous Chancellor would also abandon the Government’s triple-lock guarantee on the state pension, which even Osborne privately admits is indefensible given other spending constraints.
In themselves, none of these things are particularly eye catching, but if Hammond can establish such an agenda, he’s much more likely to be remembered as a competent Chancellor than any of his immediate predecessors.