We will all need a stiff drink to swallow Hammond’s austerity
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Version 0 of 1. As the immensity of the consequences of the referendum strikes home, the May government is becoming increasingly dependent on the Conservative party’s rediscovery of the need for “infrastructure” and “industrial strategy”. It was therefore entirely in keeping with the chaotic approach of the Brexiters that Theresa May should sack one of her leading advisers on both these subjects last week, because she did not like Lord Heseltine’s opposition to Brexit. Yes, Heseltine, in common with Ken Clarke and Tony Blair, has not joined the band of former Remainers who have “moved on” and now wish to make the best of Brexit. Bully for him. It cannot be repeated often enough that the result was 51.9% to 48.1% of those who voted. Furthermore, only 37% of the entire adult population voted for Brexit. This, of course, is what, in this modern world of alternative facts, the prime minister and Brexit secretary David Davis call “overwhelming” support for Brexit. Now, many commentators observed that there was barely a reference to Brexit during a budget speech delivered by an unusually cocky-sounding Philip Hammond. He apparently eschewed the habit of many of his predecessors as chancellor, who liked to sip brandy or whisky in the course of their speeches. But he was on such unusually good form that some of us wondered whether he had not perhaps had a fortifying “sharpener” before entering the chamber. Before the event there was the usual stuff on the media that events had been propitious and that, contrary to all those gloomy forecasts, the economy had been “booming since Brexit”. Well, Brexit hasn’t actually happened, and quite a lot of us hope it never will. Moreover, the economy has hardly been “booming”. And to those who tell me that the future of democracy will be threatened if “the will of [37% of] the people” is challenged, my answer is that the future of this country is threatened by the “hard Brexit” which looks increasingly on the cards. Now, although there was barely a reference to Brexit in his speech, Hammond scotched a lot of wishful speculation in his subsequent interview on the Today programme, when he baldly stated that, yes, we are leaving the customs union. What about the single market? Wasn’t staying in part of the Conservative election manifesto? Yes: but so was no increase in national insurance contributions, the subject which caused the most fuss in the immediate aftermath of a (mostly) leaked-in-advance budget. The single market, to whose formation the British made an outstanding contribution, is an essential part of the EU that 37% of the adult population have voted to leave. Which brings us back to industrial strategy. The Treasury was developing an industrial strategy under the premiership of James Callaghan and chancellor Denis Healey in 1976-79, but this was abandoned by the Thatcher governments from 1979 and contemptuously dismissed as a failed policy of trying to “pick winners”. We now find that multinationals such as the French PSA Group taking over General Motors’ subsidiaries in Europe want assurances from HMG that, with Britain out of the single market, they can rely on a supply chain within the UK, supported by an accommodating industrial policy and decent infrastructure. At present supply chains are “Europeanised” or “globalised”. Yes, the Conservative party that for a long time believed the state had no role to play in industrial policy is now rediscovering the wheel – but has dismissed Michael Heseltine, who did not need to rediscover it. And the Treasury is placing great emphasis on the importance of “productivity” – ie the supply side of the economy – to provide the future growth on which higher living standards and tax revenues ultimately depend. For the uncomfortable truth, underlined by the Office for Budgetary Responsibility, the Institute for Fiscal Studies and the Resolution Foundation last week, is that, after a splurge of consumer spending largely financed by borrowing, the outlook for real incomes is pretty bleak – indeed, there are already signs of a slowdown, and the OECD is forecasting economic growth this year of a mere 1.6%. And the OBR’s post-Brexit forecasts are frightening. But austerity in the public sector is set to continue. Let no one be in doubt: this was a policy choice on the part of George Osborne in 2010, and it is a policy choice now. Underlying it all is the Conservative party’s obsession with shrinking the size of the state and minimising the so called “tax burden” – a “burden” which helps to ensure we have decent hospitals, schools and infrastructure generally. There can be little doubt that, on his own terms, the decision of Chancellor Lawson in the 1988 budget to bring the top rate of income tax down from 60% to 40%, and the basic rate from 27% to 25%, was what is known in the trade as a “game changer”. Total taxation as a proportion of national income has been around 34% in recent years. But when the economy is operating close to capacity, as the OBR believes it now is, in a decent society the ratio of taxation to national income should be considerably higher – even close to 40% – in order to provide decent public services. For all their conciliatory talk, May and Hammond are pursuing Osborne’s austerity policies. Meanwhile, although for all his efforts Osborne failed to achieve anything like a budget surplus for the nation, he has managed – while capitalising on the lecture circuit upon his experience in office – to achieve a healthy budget surplus for himself. Some people are shameless. |