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The Waugh Zone Tuesday October 30, 2018

By Paul Waugh

1. PHIL’S CHOICE

Philip Hammond used to make a virtue of the fact that he was a boring Chancellor, not a ‘political’ Chancellor. Unlike George Osborne, ‘fiscal Phil’ was deliberately averse to conjuring rabbits out of Budget hats or anything that diverted him from his assiduously cultivated dullness. Yesterday, that all came to an end as Hammond caved to pressure from Theresa May to use an unexpected windfall and splash the cash on a string of key voter groups. With tax cuts coming into force next April ahead of a possible May election, someone may need to pass Brenda from Bristol the smelling salts.

Every year, the Treasury redacts party-political attack lines from its publication of Budget speeches, with the wonderfully dismissive phrase ‘[political content removed]’ inserted at key points. In 2017, Hammond had a dozen such moments. Yesterday, he had thirty. He made plenty of lame gags, but the biggest joke for Labour MPs was his line that “tough decisions of the last eight years were not driven by ideology, they were driven by necessity”. The Opposition constantly points out austerity is a political choice, not an immutable law of economics. And Hammond gifted Jeremy Corbyn that argument as he chose to spend rather than repay debt, fudging his promise to balance the nation’s books.

On the Today programme, Hammond admitted ‘we made that choice’ to put more money into the NHS than to meet his fiscal target. But his other priorities were telling, not least his decision to spend more on repairing road potholes than on emergency school funding. Accelerating a massively expensive income tax cut (costing £2.7bn next year and benefitting the better off most) rather than ending Osborne’s freeze on working age benefits (costing £1.5bn and hitting the poorest most) was another example of a choice taken. The Chancellor said cutting income tax was ‘not a choice..it was an obligation’ to deliver a manifesto promise, and the ‘right and moral’ thing to do. Yet that manifesto pledged the tax cut next year, not this.

Nye Bevan famously said that ‘the language of priorities is the religion of socialism’. But that language is also the religion of conservatism, it’s just that Tory priorities are different. That’s why the government yesterday continued to target cash towards defence, Northern Ireland, and tax cuts for big business and the better off. They may be valid choices, but they are choices nevertheless. It’ll be up to the voters at the next election (and I’m still very sceptical there will be any election before 2021) to decide which they prefer.

2. FLAT, REAL?

Hammond’s other problem is that while he may now sound like a political Chancellor, he lacks the political skills to carry it off. This is the man who once said ‘there are no unemployed’. He said at the weekend that Universal Credit had mere ‘teething issues’. Yesterday, his tin ear was on full display when he talked about schools getting “little extras”, and “kit” they need.

And on the Today programme he used Treasury wonkspeak to effectively confirm austerity could indeed continue for many Whitehall departments. His plans for next year’s spending review, with the NHS taken out of the figures, “gives flat real spending available for all other departments”, he said. Asked whether that meant other departments would suffer cuts, he replied: “That’s a choice that we make, isn’t it?” (see choices, again). “You do have a choice of everybody having 0.0 per cent real, in other words maintaining their spending power in real terms after inflation year after year after year.” The IPPR said last night austerity had been ‘amended not ended’. The Institute for Fiscal Studies has its own briefing at 1pm today. The Resolution Foundation has beaten them to the punch with its 7amverdict, warning “per capita real-terms budgets are set to be 3 per cent lower in 2023-24 than 2019-20”.

For his part, Shadow Chancellor John McDonnell revealed that Labour would not oppose the tax cuts, even though they benefitted the better off most (see our list of things Buried in the Budget), because they would inject some spending to the economy. That sounded a bit off-brand, not least as Corbyn’s Labour are meant to provide clear, unambiguous opposition. Ed Miliband and Ed Balls were pilloried by the left for being ‘austerity lite’, remember.

Andy Burnham, who famously thinks he blew his 2015 leadership hopes by abstaining on, rather than opposing, Tory benefit cuts, has already tweeted his disapproval. McDonnell also refused to commit explicitly to ending the Tory benefits freeze early, but there was a hint Labour’s next manifesto could do so. “In future benefits will be properly uprated with the rate of inflation” he said, and the manifesto would ‘address’ the issue.

3. ONE WORD: BREXIT

In nearly 9,000 words delivered over 71 minutes, Philip Hammond said the word ‘Brexit’ just once. But it remains the number one policy preoccupation in the Treasury as much as No.10. Just as Hammond couldn’t realistically put up taxes to fund the NHS because a handful of Tory rebels would vote it down, the Chancellor and the PM cannot put a foot wrong on Brexit for precisely the same reason.

The OBR warned yesterday that a no-deal Brexit ‘could’ have ‘severe short-term implications’ for the economy, exchange rate, asset prices and public finances. Hammond may have wanted to use the Budget to issue a similar warning to backbench, but he pointedly stepped away from that. Instead, he said things could be even better for the public finances if May’s Brexit deal was approved by Brussels and Parliament. On Today, he said that ‘no deal’ would be a ‘shock’ to the economy but stressed the UK could cope. “Very often a shock to the economy requires a boost to spending”, he said. And the £15bn ‘headroom’ he’s built up would allow the extra borrowing needed to support the economy. That kept several Brexiteers happy, at least for a day.

Hammond’s clear implication however is that all that ‘headroom’ could be spent not on shock-absorbers but on other things (possibly the final, real end to austerity), if May’s Brexit gets the go-ahead. The wider worry from yesterday, however, is just how anaemic UK growth now looks compared to both the G7 leading economies and the eurozone. Some of this is our continued productivity failures, but whatever the cause it means we may be hit harder by the next global downturn. The timing of that slump (and the Tories point out Gordon Brown didn’t abolish boom-and-bust), as much as Brexit, could well determine when the next general election is held. Or at least decide who wins it.

BECAUSE YOU’VE READ THIS FAR…

During the Budget speech, WASPI women campaigning for fairer pensions staged a protest in the public gallery. Watch it from their perspective, as they see Labour MPs applaud them.

4. ON ANOTHER PLANET

While Hammond tried his best to appease several different groups yesterday, he showed an almost wilful neglect of environmental concerns – and a total lack of urgency about the need to tackle climate change. Things looked hopeful when he said “we cannot secure our children’s future unless we secure our planet’s future…” But all he proceeded to do was unveil £10m for abandoned waste sites (itself aimed more at a gag about McDonnell falling over a bag of rubbish) and an unspecified tax on plastics. There was not a single word about carbon taxes, renewables or other measures to stop the globe from overheating. In fact the (hugely costly) fuel duty freeze, and more roads building, showed where his true loyalties lay.

5. HOUSE MOVE

One of the most read stories on HuffPost yesterday was the Chancellor’s pledge to abolish stamp duty for all first-time buyers of shared ownership properties valued up to £500,000. That was perhaps a clue that younger people are very keen on any good news on the housing front, but also a pointer that the Government sees this as an increasingly important area. There was also “a call for evidence inviting proposals from investors willing to collaborate with government to deliver a new wave of shared ownership homes”. There were several other measures, such as extending the Help to Buy scheme for two more years, lifting the cap on council borrowing for new homes and the Letwin planning review. Housebuilding is still below pre-crash levels, and don’t forget May said last year. she will ‘dedicate my premiership’ to fixing the housing crisis.

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