Clouds starting to clear as the Chancellor looks long-term
Hammond says £13bn Budget windfall will be put towards boosting infrastructure after Brexit
Philip Hammond has a reason to smile. Last week the Chancellor – often accused of revelling in gloomy economic forecasts – became the political beneficiary of a £13billion windfall. The Office for Budget Responsibility’s upgrade of the country’s finances has given Mr Hammond much-needed wriggle room for tomorrow’s Budget, into which he had been heading with the tight constraints of funding Theresa May’s £20billion increase for the NHS, while also putting aside “fiscal buffers” to ease the country’s departure from the European Union.
“The fundamental health of the economy is plain to see,” Mr Hammond tells The Sunday Telegraph.
“We are operating under a cloud of uncertainty. Notwithstanding that, the behaviour of the economy is buoyant.”
In his spring statement he pledged more money for public services if the OBR’s positive forecasts were maintained by the time of this Budget. He hints that some of that spending will indeed be unleashed tomorrow.
“I said then that if those figures turned out to be sustainable and were indeed sustained at the autumn Budget then that would leave me with more ability to support public services,” he says. “The Prime Minister has since obviously talked about the end of this long process being in sight and the hard work of the British people paying off. This hasn’t happened by accident.”
The Government had “resolutely focused on the things that matter” by “ensuring that Britain is an attractive place for businesses to invest”, creating 3.3 million jobs since 2010 and tackling tax avoidance and evasion.
There are, he says, more measures in the Budget to crack down on those failing to pay tax, to make sure that “everybody is paying their fair share”.
Even with substantially more money to spend, the Chancellor would, he says, focus the Treasury’s resources on the four priorities that already underpin his Budget: public services, lowering debt, families and small businesses, and capital investment in technology. It is believed he is preparing to commit at least £250million to help connect rural areas with high speed internet. The money would pay for the installation of fibre broadband in local hubs such as schools and libraries, which would then make it easier for residents and local businesses to extend connections to their premises.
“Sometimes the easiest thing for a government to cut in the short term if it’s under pressure is capital investment,” he says. “But it is the spending on the skills of the next generation, the infrastructure, including the digital infrastructure, the broadband infrastructure.
“For the 21st century broadband is to roads in the 20th, railways in the 19th, and canals in the 18th. It’s the network infrastructure that will make this country work.”
Investment in new technologies should, Mr Hammond adds, help address Britain’s relatively weak productivity. “There’ll be plenty [in the Budget] about the productivity challenge and how we can use the technology revolution to address that productivity challenge. The bottom line is that if we’re going to deliver rising real wages and rising living standards for the British people we have to raise Britain’s productivity.
“It is just not acceptable, and neither is it necessary, that a German worker or an American worker produces 30 per cent more output per hour worked than a British worker. We compensate for that by a culture of long hours and lower pay. That’s not my vision for the future.”
Addressing the Conservatives’ conference in Birmingham on Oct 1, Mr Hammond raised the prospect of Britain pursuing a digital tax to help ensure that internet giants such as Facebook contributed a greater share of their profits. Days later it emerged that Facebook paid just £7.4million in corporation tax last year. MPs insisted it was unfair that this came at a time when high street shops, hit hard by internet shopping, were shouldering hefty business rates.
Mr Hammond’s Budget will include £900million in business rates relief for nearly 500,000 small businesses.
He also hints that he would offer an ultimatum to countries stalling on an international agreement over taxing internet firms.
“The key country of course in all of this is the United States, getting the US on board agreeing with us about the need and the right way in which to approach this,” he says.
“It will be much more effective and much more durable and much less easily avoidable if it’s done on an international basis.
“But British people have a really very strong sense of fairness, and there is a real sense that it is just simply unfair that these very large internet companies are not paying their fair share of tax in the UK.
“And when you get a really strong, across-the-board sense of unfairness among the population something, has to be done.”
Moving forward unilaterally would be “sub-optimal”, but “it’s still better than doing nothing and looking as though we’re being walked all over by companies that are too big for us to control”, he says.
“If you don’t mind, I’ll tell you on Monday what my approach is but I think I’ve signalled pretty clearly that we’re not going to just talk about this forever, we’re going to have to have a timetable for moving forward and we’re going to have to set some deadlines.”
Mr Hammond, who was a developer before his election to the Commons in 1997, is most animated when he turns to his plans to revive high streets, including the potential for empty shops at the “scruffier ends” of town to be turned into new homes.
The Budget will include plans to relax planning rules to make it easier to convert commercial premises into dwellings. He believes that doing so could make a significant contribution to the Government’s house-building targets and bring increased footfall to high streets.
“There’s a fantastic opportunity here,” he says. “If we get it right, when we look back 20 years from now I think we can see an important turning point where we stared into the abyss for the high street and we decided that we will not allow this to happen, we will grab our high streets by the scruff of the neck and we’re going to turn them around.”
Shortly after the elevation of Gavin Williamson from chief whip last year, a brief war erupted between the new defence secretary and Mr Hammond, who had held the post until 2014, as Mr Williamson went public with his lobbying for extra funding.
In recent months, relations appear to have improved, with negotiations taking place behind the scenes, and Mr Hammond hints that he will unveil a cash injection tomorrow. He insists that the issue is personal to him as a result of his time at the helm of the Ministry of Defence.
He says: “It’s about how we support the men and women of our Armed Forces going forward to ensure we’ve got the configuration that we need to keep Britain safe, to project our power and influence in the future, and there is nobody more committed to that mission than me.
“I do recognise that although we will deal with the longer term strategic question in the spending
‘When you get a really strong, across-theboard sense of unfairness among the population, something has to be done’
review next year, as we will do for all departments, there is also an immediate challenge in defence. I will address that in my speech on Monday because I want to make sure that we always provide the resources that our armed forces need to keep Britain safe, not just in the medium term but in the short term as well.”
Mr Hammond has constantly been targeted by Brexiteer colleagues over his approach to the negotiations with Brussels, including his apparent preference for formulas that keep the UK more closely aligned to the EU than many Leavers could stomach.
So some may be surprised at his defence of their stand over the EU’s current plans for a fallback position, or “backstop” that could leave the country in the customs union indefinitely. Referring to the comparison by Geoffrey Cox, the pro-Brexit Attorney General, of such a position to being stuck in Dante’s first circle of hell, Mr Hammond states: “I’m a Kafka man rather than a Dante man, but similarly you can’t be in some sort of Kafka-esque time warp where you’re stuck in a situation with no clear way out of it and no end point to it.”
He goes on: “Rather ironically, the Europeans think this is a British plot to ensure the fruits of access to their marketplace without the burdens of the full panoply of agreement that there would be in a future trading partnership.”
But he insists: “There is no desire at all on the part of the European Union to have us in that limbo.”