Hammond’s wiggle room

PHILIP Hammond has had a torrid time since his March budget which was meant to be a feel-good financial statement based upon better projections for borrowing. But it turned into a nightmare when he was forced to reverse one of his major tax raising measures – the effort to impose higher national taxes on the self-employed.

Since then, other measures that would have raised funds for the exchequer, such as iniquitous new probate charges, also have been reversed. It is not clear that Hammond will still be Chancellor after the election, as he quipped yesterday Theresa May likes to keep her cards close to her chest. Nevertheless, he is keen to make sure the 2017 manifesto does not make the same bravado promises as those cooked up by George Osborne and David Cameron in 2015.

They rashly pledged that the three biggest sources of tax income for the exchequer – income tax, national insurance contributions and VAT – would not be increased in the next Parliament, in a big signal to the electorate that you don’t elect Conservatives to raise taxes. It was this promise that embarrassed Hammond, who sought to free himself from the NIC restriction with some sophistry around the types of contributions affected. It didn’t wash, and the whole issue of the self-employed has been transferred into the hands of Matthew Taylor, the head of the Royal Society of Arts.

Hammond left no doubt that when he delivers his next budget – whenever that may be – he doesn’t wants his hands tied.

In the same way that the NIC increase for the self-employed was ruled out on a technicality, so it could be argued doing a more simple income tax change – such as freezing allowances – would have potentially breached the previous manifesto pledges.

It also looks as if Hammond is preparing Britain’s pensioners for a setback. The ‘triple lock’ that guarantees retirees an increase in the state pension equal to aver- aging earnings, inflation or 2.5pc is set for the dustbin of history. The review of the ‘triple lock’ will not be completed before the election, but Hammond left little doubt as to the direction of travel.

Using manifestos to make very specific tax promises is a mug’s game. We can expect the Tories to make much of the fact that they are the low tax party. But with the legacy of borrowing and debt left by the last Labour government still a shadow over everything the Chancellor can do, he is determined to give himself maximum flexibility.

Libor dump

NEARLY a decade after the financial crisis, the issue of alleged government and Bank of England connivance in the manipulation of the key Libor interest rate still hangs like the ‘Sword of Damocles’ over all those implicated. Recent disclosures by Panorama and this paper suggest that the efforts to chisel down Libor interest rates for reasons of financial stability were far more widespread than previously known.

The actions of policymakers in the heat of the greatest financial meltdown for a century could potentially be regarded as justified. They are very different to the subsequent disclosure that unscrupulous traders across the world had been manipulating key reference interest rates for corporate and personal gain through the bonus structure. It has been impossible to get to the bottom of the issue of who, in government and the Bank of England, said what to whom while investigations continue and the Serious Fraud Office brings traders to justice.

The Bank of England is enthusiastic to clear the air. It is my understanding that the governor Mark Carney stands ready to release hundreds of pages of Bank records surrounding Libor as soon as the legal miasma has cleared. Sooner the better.

RBS overhang

IF PHILIP Hammond was expecting a round of applause for his announcement that taxpayer money injected into Lloyds Banking Group has been fully recovered, he will be disappointed.

Everyone knew that was on the cards with less than 2pc of the shares still to sell.

Far more significant is the Government’s deeply flawed oversight of the Royal Bank of Scotland. Recovery has been hindered by constant Treasury and ministerial interference on everything from bonuses to strategy. The next government needs to make the creation of a ‘bad’ RBS bank a priority so that the cash generating part of the business can move on and prosper.

How disturbing that this has not been sorted with greater urgency.