The Budget won’t deliver a sugar rush, but could lay firm foundations

Without blowing up public finances, Philip Hammond could do a lot to boost future economic solidity

Philip Hammond is a man in a bind. After seven years of cuts, we still spend too much and the public is in the mood for the giveaways promised by Labour. The Tories are at war, half of them demanding Mr Hammond’s head, half convinced that he is the Cabinet’s only voice of reason. Then there’s Brexit, whose potential impact ranges from a benign restructuring to a major shock.

This week, the Chancellor will deliver what could be his last Budget. Some on the Right hope he will finally throw caution to the winds and embark upon a programme of tax cuts and deregulation. Others want him to do nothing but batten down the hatches.

The problem looks intractable. Anything radical to get public spending on a more sustainable path, such as introducing contributory payments for the NHS, is politically toxic. He could start overhauling regulations, but Parliament won’t vote through anything so radical that it affects regulatory cooperation with the EU. And it is too soon to take the fiscal risk of tax cuts to stimulate growth, since the economy is motoring along just fine.

The huge economic uncertainty we face argues for restraint. But the political environment is crying out for radicalism and leadership.

The good news is that, in the short term, compelling rhetoric can fill a policy vacuum. Think of Theresa May’s spike in popularity earlier this year due to a few speeches, and the lift Boris Johnson gained from publishing an optimistic article with almost no policy content whatsoever. The public will stomach a lot of uncertainty if they are convinced that action will follow and that the people in charge have a sense of purpose.

The bad news is that Mr Hammond is not a “vision” kind of guy. Calling on him for inspiring oratory is a bit like buying a cat to herd sheep. Asked by the Daily Mail for one word to describe himself, his considered reply was: “Fiscal.” If Mr Hammond could rely on the PM to provide the pizzazz, “fiscal” would work just fine. But the country has a leadership vacuum. “Fiscal” won’t cut it.

Nor will gimmicks. A tiny slice off student loan costs, building a few thousand houses, fiddling with energy price regulation: these things might convince voters if they were part of an exciting renewal agenda. As a standalone programme for a Government struggling to articulate its vision or get anything through Parliament, they aren’t enough.

There is an approach that could work, however, without blowing up public finances. Conservatives need to refocus on building, investment, savings, education and technology. If immigration is to slow down, if our trading relationships are to be overhauled, the national task is clear: invest in our own people and invent products and services that no one else can provide. Trade and prosperity will follow.

British businesses have become a powerful engine for job creation. But investment, productivity and wages are lagging. The country needs a huge investment boost in housing and infrastructure, and there is no lack of capital ready to invest. In fact, pension funds are flush with cash and hunting for stable, long-term returns. The problem is that they are not able or willing to take the huge political risk of funding new, greenfield projects. Why invest in toll roads, railways and housing when you will soon be bogged down in legal challenges, planning rules and petitions?

The best option would be for the Government to overhaul regulations to unlock this investment and inject competition. A series of tweaks to planning law have boosted the number of homes built by developers. Abolishing our absurd unilateral carbon price floor would cut energy costs. But the country needs much more, and there is little political support for helping monopolistic private service providers, such as rail companies.

A more feasible way through would be for the Government to build what the private sector won’t, and then privatise it. This has worked well in Australia, one of the few developed countries with a thriving private infrastructure scene. It would allow Mr Hammond to announce a massive building programme without abandoning fiscal responsibility. Coupled with an expansion of “right to buy”, it would link the aspiration of home ownership with the benefits of privatisation. And it would please investors by using the UK’S current fiscal breathing space to reduce investment uncertainty.

At the same time, Mr Hammond could signal a reorientation of the economy. Britain saves too little and is dangerously reliant on foreign capital to fund our borrowing habits, both public and private. This might work for the US – a large economy using a reserve currency. For Britain, it’s risky and, over the long term, depresses investment and punishes those who take responsibility for their future.

Pension auto-enrolment was a good start to reviving savings. This approach should be extended to National Insurance, automatically shifting millions of workers towards a model in which they contribute more to fund their own care. Removing the cap on public pension pots might save money by discouraging the early retirement of experienced public sector workers. And the Chancellor should start consulting with the Bank of England on its role in our low savings rate.

Finally, the Government needs a more holistic approach to education. The Coalition’s schools reforms are bearing fruit, and a review of the value delivered by university degrees, announced in October, was a good move. But Mr Hammond should also look into why businesses aren’t providing more training, why they are so lukewarm towards apprenticeships, and how to make it easier for workers to switch careers.

These are all policies that would actually move the dial, rather than just tinkering. They are long-term bets and won’t deliver the economic sugar rush promised by Labour, but voters can be surprisingly patient if they feel that politicians have a serious and compelling vision for the future.

It’s time to be realistic about what Mr Hammond can and can’t do. Embarking upon Thatcherism 2.0 might please the base, but that’s an agenda suited to the Seventies. Modern voters have different worries; ones with Conservative solutions. What’s lacking is the confidence to deliver them.