Hammond’s coup d’etat promises the softer Brexit business wants
IT’S been a bad 12 months for HM Treasury. As an institution, it is used to getting its way, but following the vote for Brexit, which it vehemently opposed, it was pretty much frozen out of the debate, a deflated, demoralised, almost irrelevant voice in government. The Chancellor, Philip Hammond, became a dead man walking; even if Mrs May didn’t fire him, her joint chief of staff, Nick Timothy, surely would. That, however, was before the election, which once more changed everything. Today, the Treasury mandarins are back in the driving seat.
In the absence of any leadership from the enfeebled Theresa May, the Chancellor seems to have seized his opportunity and become the de facto Prime Minister. While the actual one is away walking in the Italian Tyrol, and the “blond wombat” is conveniently out of the country, doing his standup comic routine in Australia, it is Mr Hammond who has been making the weather.
No doubt he can expect pushback from Brexit purists, but the Treasury view – that we cannot afford to take risks with the economy and the public finances – is for the moment prevailing; Brexit must be more of an evolutionary process, it insists, than the big bang, clean break Nigel Farage and other true believers want.
This is quite a turnaround. In the lead up to the referendum, the Treasury campaigned furiously for Remain, producing two supposedly defining and deeply negative assessments of the impact of a vote to leave. Together they formed the backbone of what became known as “Project Fear”. Yet in the end, they were either ignored or disbelieved. When Michael Gove, a leave campaigner, said “we have had quite enough of experts”, he meant primarily the Treasury.
Presiding over these assessments was the bicycling economist, Sir Dave Ramsden, chief economic adviser to the Treasury. Last week it was announced that Sir Dave would indeed be on his bike; he’s moving across to the Bank of England to take up the post of deputy governor. I don’t want to suggest he’s being put out to pasture; his new role puts him in pole position to succeed Mark Carney as Governor in two years’ time.
Sir Dave’s years at the Treasury should in any case be remembered not for his work on Brexit, but for the brilliance of Gordon Brown’s “five tests”, which finally put the kibosh on Tony Blair’s push to join the Euro. The five tests were remarkably prescient in highlighting the dangers of monetary union.
As it happens, the Treasury was also spot on in predicting a 12pc Brexit devaluation, but it was wrong about the effect on jobs, interest rates and house prices. Rival assessment by “Economists for Brexit” was much more on the money in saying the vote would have virtually no immediate impact on growth, but as so often happens in economic forecasting, the Leave economists were right for the wrong reasons. They also predicted no impact on sterling, and continued, quite high real wage growth.
Both the Treasury and the Bank of England assumed a big impact on private consumption and investment; in the event, there wasn’t much. Yet as is now plain, the effect may just have been on a long fuse. Both show clear signs of slowing as we head towards the door.
And that’s why, to me, the Hammond approach to Brexit makes obvious sense. For many Brexiteers, any potential short term damage to the economy is a secondary consideration, or even a price worth paying for exiting the EU. But that can never be true of the Treasury, charged as it is with the nation’s purse strings.
The Treasury approach is designed to achieve two things; by guaranteeing another five years when in effect the nation’s trading relationship with the EU won’t change, the Treasury hopes to provide sufficient medium term certainty to avoid an investment strike. At the same time, it ensures that none of the economic advantages of membership of the single market are given up until we can be sure there are sufficient alternative free trade agreements to compensate. In other words it gives the economy time to adapt to the new reality.
As I say, all very sensible. Now watch the politics make mincemeat of the economics.
Few business leaders are ever remembered beyond their own lifetimes, but one who surely will, perhaps even more so than Henry Ford, Bill Gates and Steve Jobs, is Jeff Bezos. As he briefly became the world’s richest man last week, someone published a tweet which pictured a nerdy, slightly shy looking young Mr Bezos alongside a menacing contemporary image in which he looked much like the Terminator. Once he sold books, read the tweet. Now he sells everything.
Of all the tech giants, Amazon is to my mind by far the most impressive, constantly inventive, always pushing the boundaries, and most important of all, giving the consumer what he wants before he even knows he wants it; in the fullness of time, Amazon’s transformational impact on the economy is likely to prove much greater than any of the other so-called “fangs” – Facebook, Amazon, Netflix, and Google. What’s doubly impressive is that Mr Bezos has done it by breaking all the conventional rules of business. Stick to your knitting and don’t diversify; Mr Bezos has feverishly diversified creating a true conglomerate. Reward your investors; Amazon has never paid a dividend, preferring instead to vest virtually all its burgeoning surplus back in the business. Know your limits; there are none at Amazon.
If all this sounds like shameful corporate puffery, I make no apology. No doubt there are banana skins aplenty awaiting the mighty Mr Bezos. And inevitably, a veritable posse of regulators is already in hot pursuit. But sometimes, business achievement deserves to be celebrated, and it is hard to think of a more deserving case than Amazon.
‘It is all very sensible. The Treasury’s approach gives the economy time to adapt to the new reality’
Culture clash: Boris Johnson, the Foreign Secretary, during his tour of New Zealand