Hammond calls for ‘grown-up’ tax debate

Allies of Chancellor round on Gove and Johnson for suggesting end to public sector austerity is an option

Britain must have a “grown-up debate” about whether people are prepared to pay more tax to increase public spending, Philip Hammond said last night. The Chancellor’s comments come amid a deepening Cabinet split over the public sector pay cap. Mr Hammond said voters need to consider whether they are prepared accept higher taxes to ease austerity. This contrasts with Michael Gove, the Environment Secretary, who has said taxpayers should not have to meet the cost of scrapping the pay cap.

PHILIP HAMMOND last night said that Britain needs to have a “grown-up debate” about whether people are prepared to pay to increase public spending amid a deepening Cabinet split.

The Chancellor said voters needed to consider the “serious question” of whether they were prepared accept higher taxes to ease austerity after “seven years of hard slog”.

In a speech to business leaders, he said: “The serious question to the electorate cannot be ‘would you like us to tax someone who isn’t you to pay for you to consume more?’, but ‘would you be willing to pay more tax to consume more public services?’ ”

His comments are in contrast to those of Michael Gove, the Environment Secretary, who said at the weekend that taxpayers should not have to meet the cost of scrapping the public sector pay cap.

Mr Gove and other Cabinet ministers, including Boris Johnson, Michael Gove, Jeremy Hunt and Justine Greening, have signalled that public sector workers such as nurses, teachers and police deserve a pay rise.

However, the Chancellor warned that borrowing more to fund public sector spending is “merely passing the bill to the next generation”.

Speaking at the CBI Presidents’ dinner, Mr Hammond said: “We do, of course, recognise that the British people are weary after seven years’ hard slog repairing the damage of the Great Recession. They have travelled a long way but still the sunlit uplands seem stubbornly to remain one further ridge away.

“And once again, some are questioning whether we should abandon the economic plan that has brought us so far and take a different path; a path of higher taxes on business and wealth creators, higher spending, nationalisation, and higher borrowing.”

He added: “That does not mean we can’t have a debate in Britain about the level of funding of public services. But it does mean that it has to be a grown-up debate where we acknowledge that borrowing to fund consumption is merely passing the bill to the next generation and reject the fallacy that the burden of additional taxation can always fall on someone else.

“Then, hopefully, we can build a consensus that the only sustainable solution is to increase the trend rate of growth.”

Mr Hammond’s allies insist that he will not be “bullied” by Mr Johnson and Michael Gove into scrapping the public sector pay cap. A minister told The Daily Telegraph: “Their intervention [Mr Johnson and Mr Gove] was not eloquent or clever. We have to be honest with the public. Economic credibility matters for the future of this party. How are we going to fund it? We need to have a national debate about this. I despair of them; how can you criticise the Labour Party for borrowing too much if you’re going to do the same?”

But official research has found that nurses, teachers and police officers have fared better than private sector workers and those in other comparable public sector professions over the past decade. University College London and the National Institute of Economic and Social Research found that while the overall pay of public sector workers had fallen 3.1 per cent, in the private sector and for workers not represented by pay bodies it has fallen 6.1 per cent.

The pay of nurses rose by an average of 8.6 per cent between 2005 and 2015, compared with 6.4 per cent in the private sector. Teachers in the public sector saw their pay rise 0.8 per cent while those in the private sector saw their pay fall by 2.9 per cent.

Stephen Crabb, a former Work and Pensions Secretary, suggested that Mr Gove and Mr Johnson should resign from Government if they are going to break ranks and oppose the cap.

Lord Lamont, a former Conservative Chancellor, accused Mr Johnson and Mr Gove of “ganging up” on Mr Hammond. He said: “This is not a choice: it is unavoidable that we have restraint on public spending. It’s not right for cabinet ministers to gang up on the Chancellor in this way.”

Downing Street yesterday indicated that nurses, doctors, dentists and the armed forces will not see a pay rise beyond the 1 per cent cap this year because a deal with the professions has already been reached.

When Theresa May became Prime Minister a year ago next week, we were promised a return to Cabinet government to replace the more relaxed and informal atmosphere of the Cameron era. To some extent it was delivered, with greater emphasis on committees and proper policy papers. But in another, crucial, way it was absent: Cabinet ministers found themselves excluded from the key decisions surrounding Brexit and the running of the general election.

Now, Mrs May’s failure to win a majority has emboldened her ministers to say pretty much what they want on almost any subject under discussion.

Instead of a Government speaking with one voice, we are hearing a cacophony of policies emanating from all corners of Whitehall. It is giving the impression of an administration all at sea; and it has to stop.

Today’s Cabinet meeting provides the opportunity for some discipline to be restored, preferably by the Prime Minister and if not by her then by the participants themselves. They need to agree a set of common positions on matters such as the public-sector pay cap and the progress of the Brexit negotiations – and stick to them in public.

Downing Street yesterday sought to quash talk among ministers about an imminent change in policy over public-sector wage restraint. But it is apparent that No10 is no longer able to lay down the law. What is needed is a self-denying ordinance by individual ministers who sense Mrs May’s vulnerability and are positioning themselves for her possible departure.

But since the party has taken a decision to stick by the Prime Minister, who did, after all, increase their vote share, her Cabinet has a duty to show unity and adopt agreed positions on key policies.

If ministers want to spend more public money on Corbyn-style promises that they were deriding just a few weeks ago, they should have a proper discussion about their priorities.

Tax rises are matters for the Chancellor yet MPS seem to be pushing for these rather than spending cuts, which was Labour’s position in the election.

If ministers want more spent on pay, will they countenance reductions elsewhere, in foreign aid for instance?

This is not an opposition with the luxury of working out where they stand as they go along. This is a Government and it should act like one.