Is Philip Hammond in the arrivals or departures lounge?
The UK Chancellor prepares for Brexit budget while being accused of talking Britain down
Philip Hammond - credit Jonathan Brady/PA Wire
With UK inflation rising to three per cent and the value of the pound remaining low, shoppers are starting to finally see what Brexit actually means.
Driven by rising transport and food prices, inflation has hit a five-year high and is now 0.9 per cent above the rate of wage growth – meaning that the incomes squeeze is becoming tighter.
And for those whose public-sector wages or benefits have been capped and frozen, the struggle daily life will become starker than ever. In other words, Brexit has arrived for those counting the pennies. Theresa May, too, is just about managing.
Last week, the Organisation for Economic Co-operation and Development (OECD) went as far as to say that a change of government or second referendum might boost business confidence amid a “standstill” in economic growth.
“The United Kingdom is facing challenging times, with Brexit creating serious economic uncertainties that could stifle growth for years to come,” said the OECD’s secretary general, Angel Gurria. “Maintaining the closest economic relationship with the European Union will be absolutely key, for the trade of goods and services as well as the movement of labour.”
While pictures of Theresa May hugging EC President Jean-Claude Juncker after a “friendly” 90-minute working dinner promised progress in talks over the nation’s divorce settlement with the European bloc, a lack of detail and open in-fighting among the UK cabinet revealed our politicians remain in the dark about what post-Brexit Britain will look like.
Nevertheless, with inflation now a full percentage point above its target, the Bank of England will be more likely than ever to increase interest rates.
All this proves a tricky context for a UK chancellor preparing to deliver his budget in its new autumn slot.
But in the past few weeks, Philip Hammond has found himself pilloried by colleagues for pointing it out. Each warning the Chancellor has made about the folly of walking away from Brexit talks without a deal has been met by outrage from the Brexiteers.
Former chancellor Nigel Lawson went so far as to call Hammond’s comments “very close to sabotage”.
One “senior Tory” told the Daily Mail he “deserves to be kicked not only out of the Cabinet but all the way down Whitehall”.
Nadine Dorries said: “We need a ‘can-do’ man in the Treasury, not a prophet of doom.”
His greatest crime, it would seem, has been the attribute normally required of chancellors – a considered, prudent approach.
Responding to the OECD warnings, Hammond said: “[By] delivering a time-limited transition period, avoiding a disruptive cliff-edge exit from the EU, we can provide greater certainty for businesses up and down the UK, and across the European Union.”
The fact many Tories are looking to the Foreign Secretary, a man who said it was time to “let the British lion roar”, for leadership reveals the naked nationalism at the heart of Brexit.
Never mind the economic reality, the Chancellor should not be talking the country down. Could his budget be doomed before it is even written?
Leaked budget plans to increase income taxes for older people while lowering it for the under-30s look likely to provoke a backlash from Conservative backbenchers, many of whom rely on older voters for their majorities.
The Democratic Unionist Party, which holds the balance of Theresa May’s power, is said to be “deeply concerned” by Hammond’s behaviour.
And if the paper talk is to be believed, arch-Brexiteer Michael Gove is being touted as the man to deliver the bombastic, economic climate-denying, flag-waving budget his side so desperately wants.
But if Hammond falls, might his government go with him? The political balance at Westminster is as precarious as the economy, and the fact is there is not a Commons majority for a budget which ignores the economic reality.
Businesses are calling on him to use the budget to provide measures to boost confidence.
Liz Cameron, of the Scottish Chambers of Commerce, said: “It is critical that the measures provided in the Chancellor’s upcoming Autumn Budget are clearly designed to boost business confidence and increase investment.
“Ensuring a stable environment for business growth will contribute to rising wages, and a subsequent rise in consumer confidence.”
While Westminster’s balance of power looks fragile, at Holyrood, the SNP’s adoption of Green, Labour and Liberal Democrat ideas could trigger a move away from the toxic tribalism of the last decade of Scottish politics.
Nicola Sturgeon’s Programme for Government speech included promises to take on ideas mooted in opposition MSPs’ members’ bills, as well as entertaining the idea of changes to taxation and lifting the public sector pay cap. Even the Scottish Greens policy of a citizen’s income got a mention.
Then the First Minister used her speech to the recent SNP conference to reinforce her progressive credentials.
A state energy company, teacher training bursaries and taxation “for the general good” all featured in a speech which could have ended with Jeremy Corbyn’s ‘for the many, not the few’ tagline.
“What kind of country do we want to be? Too often, the debate on tax is framed as the economy versus public services. That’s wrong,” said Sturgeon.
Despite her deputy John Swinney insisting the SNP is the party of the centre ground, like Theresa May before her Sturgeon’s conference speech served to prove Corbyn right in his audacious claim to have shifted the British political centre ground to the left.
But whether inspired by Corbyn or not, with the flatlining pound and wage stagnation hitting the lowest earners hardest, all sides have recognised some kind of rebalancing of the economy is necessary.
The OECD, too, has advised a focus on wage growth and job security.
“Future prosperity will depend on new reforms to improve job quality, boost labour productivity and ensure that the benefits are shared by all,” said Gurría.
In Scotland, it seems Sturgeon recognises she will find the kind of parliamentary consensus for tax rises Hammond could only dream of – even if the price to do so is to quietly park independence and the air tax cut. It would appear Hammond has no such bargaining chips.
But business representatives were not impressed by Sturgeon’s speech.
Hugh Aitken, CBI Scotland Director, said: “Growth figures released just last week remind us how fragile Scotland’s economy remains yet the pro-enterprise rhetoric that we’ve heard recently from government, sadly, hasn’t been matched in today’s speech.
“We need to ensure we have a competitive, inclusive and productive business environment.
“This applies as much to our tax regime as it does to energy markets and responsible public finances. It’s important that we don’t limit access to the talent and investment we need to maintain a competitive edge and deliver future growth and prosperity.”
And with growth in Scotland trailing even that of the UK as a whole, the stakes are high.
“If the government is serious about a change in emphasis, we could see the policy landscape become much more dynamic,” said Professor Graeme Roy, Director of the Fraser of Allander Institute.
The SNP’s Growth Commission, chaired by former MSP Andrew Wilson, was set up to make a future economic case for independence but, as Sturgeon told this magazine ahead of the conference, its findings will be relevant to the “here and now” of government economic policy. So rather than producing a white paper for an economic case for independence, the SNP may well end up taking Scotland down a different economic road while still within the Union.
In the past, the SNP leadership has often been accused of ignoring the economic reality in putting independence first, and of admonishing economic critics for ‘talking the country down’.
Now, however, that is firmly the pastime of the Brexiteer, much to Hammond’s dismay, while Scotland tries a different approach to tackling the economic fallout – perhaps only highlighting, once again, the difference in approach between north and south of the border.
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