Phillip In­man: Alas poor chan­cel­lor: doomed to do lit­tle and please no one

Phillip In­man

The Observer - - NEWS -

Philip Ham­mond is trapped in a prison cell of his party’s mak­ing. On one side, the chan­cel­lor is hemmed in by Tory MPs ready to veto al­most any tax-rais­ing mea­sure that could give him some room for ma­noeu­vre. On an­other there are his own and the Trea­sury’s con­ser­va­tive rules about what to do about the an­nual spend­ing deficit, which they agree must drop to zero within the next 10 years.

Ham­mond is also cramped by the Trea­sury’s fi­nan­cial fore­caster, the Of­fice for Bud­get Re­spon­si­bil­ity, which shad­ows his ev­ery move with de­lib­er­ately con­ser­va­tive pre­dic­tions about Bri­tain’s eco­nomic health. And fi­nally, the chill wind that has blown the cell door shut is the on­go­ing un­cer­tainty over the Brexit ne­go­ti­a­tions.

Plenty of com­men­ta­tors on both left and right would have him step out­side these self-im­posed con­ven­tions to spend more, cut more or push re­forms at a faster pace. If he is to keep his party to­gether, none of this is pos­si­ble.

Thanks to the splits in his own party over eco­nomic pol­icy and the im­pact of ex­it­ing the Euro­pean Union, along with the de­ci­sion to out­source fore­cast­ing to the OBR and his own con­ser­vatism he will be un­able, on 22 Novem­ber, to take more than one pace in any di­rec­tion. He is doomed to please al­most no one.

Ham­mond is well aware of the power wielded by his party’s frac­tious and in­creas­ingly un­ruly back­bench MPs. Some­times, as he lis­tens to news on the ra­dio or tele­vi­sion, he must think that it is Ja­cob Rees-Mogg who is the fi­nal ar­biter of gov­ern­ment spend­ing pol­icy, not him­self or his Down­ing Street neigh­bour.

It only takes a hand­ful of Tory or DUP MPs to de­clare that this or that pol­icy is un­ac­cept­able and Ham­mond’s ideas crum­ble in his hands, as he found in March when plans to raise just over £1bn from an in­crease in na­tional in­sur­ance con­tri­bu­tions for the self­em­ployed was tor­pe­doed by ReesMogg, among oth­ers.

The list of no-go ar­eas is long. For sev­eral years, Tory MPs have ef­fec­tively scup­pered a rise in fuel duty in line with the re­tail prices in­dex (RPI) so as to ap­peal to sub­ur­ban two-car fam­i­lies. No mat­ter that this would raise vi­tal sums for the ex­che­quer.

Man­i­festo com­mit­ments will force him to spend money on rais­ing the per­sonal al­lowance thresh­old for in­come tax from £11,500 to £12,500, and the in­come thresh­old for pay­ing the 40p rate to £50,000.

With VAT and na­tional in­sur­ance un­touch­able, and any thoughts of cut­ting ben­e­fits for pen­sion­ers and ending pen­sion tax re­liefs out of the ques­tion, he is left scratch­ing around for small change down the back of the sofa.

No doubt he will claim to have has found a few more bil­lion from clam­p­downs on tax avoid­ance. It is a theme that will play well with par­lia­ment and vot­ers, es­pe­cially fol­low­ing the Guardian’s lat­est Par­adise Pa­pers rev­e­la­tions of tax avoiders from Ap­ple to Gary Lineker. But the tax wheezes used by the su­per-rich and ma­jor cor­po­ra­tions, while ripe for fur­ther gov­ern­ment at­ten­tion, are among the few soft tar­gets left.

No won­der Ham­mond has spent that past few months on one of the big­gest charm of­fen­sives con­ducted by No 11 in­side par­lia­ment in re­cent mem­ory.

Where Ge­orge Os­borne be­fore him was de­ter­mined to de­velop a mes­sage for pub­lic con­sump­tion and stick to it through hun­dreds of tele­vi­sion and ra­dio in­ter­views and ap­pear­ances in the House of Com­mons, Ham­mond has re­mained res­o­lutely in­side the West­min­ster bub­ble.

In­stead of de­vel­op­ing a nar­ra­tive to show that his tax and spend­ing poli­cies are the best pos­si­ble in the cir­cum­stances, he has spent ev­ery spare mo­ment con­vinc­ing Tory MPs that be­cause of the con­straints placed upon him, in part by them, there is lit­tle he can do to sat­isfy short-term de­mands.

His obli­ga­tion to stick to tight spend­ing plans can also be laid at Os­borne’s door, par­tic­u­larly his cre­ation of the OBR, with its down­beat as­sess­ment of Brexit. Worse, the Trea­sury is braced for the OBR to down­grade fu­ture pro­duc­tiv­ity growth, which will force Ham­mond to put a line through ex­pected in­creases in tax re­ceipts.

The re­sult will be a fore­cast that robs him of at least half of the £26bn he al­lowed him­self to off­set the ef­fects of Brexit be­tween now and 2021.

In­side the Trea­sury, of­fi­cials be­lieve there is al­most a 90% chance the OBR will be wrong, ei­ther be­cause Brexit is much worse for the econ­omy, or be­cause it is bet­ter. Its an un­usual sit­u­a­tion to plan for, to say the least.

Yet, as any po­lit­i­cal his­to­rian will know, ig­nor­ing pleas for ex­tra money from busi­ness and the pub­lic sec­tor is a dan­ger­ous strat­egy. Ham­mond would be align­ing him­self with chan­cel­lors such as Roy Jenk­ins and Ken Clarke, who both put im­prov­ing the long-term health of the pub­lic fi­nances be­fore de­mands for short-term spend­ing only to help their re­spec­tive gov­ern­ments – Harold Wilson’s sec­ond Labour ad­min­is­tra­tion in the 1960s and John Ma­jor’s first and only in the 1990s – go down to de­feat.

He’d do bet­ter to con­front the ReesMoggs in his own party, only this time with a mix of higher bor­row­ing and tax rises on the wealth­i­est that would in one thrust dis­arm those who put Brexit above all else. Be­cause surely if they want Brexit, there are sac­ri­fices to be made in the short term. Not just a big­ger bill to Brus­sels. The Bri­tish pub­lic de­serves some gen­eros­ity too.

Lis­ten­ing to the news, he must think Ja­cob Rees-Mogg is the fi­nal ar­biter of tax and spend­ing pol­icy

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