Philip Hammond’s bid to buy his way out of trouble

LONDON — It was a budget born of weakness.

Faced with gloomy economic forecasts, mounting political pressure from his Brexiteer critics who suspect the U.K. chancellor may not wholeheartedly support the country’s impending exit from the European Union, and a hung parliament making it difficult for the government to get anything done, Philip Hammond bowed to political reality on Wednesday and opened his checkbook.

His plan revealed more about his own — and the British government’s — precarious position than it did about its chancellor, a fiscal hawk who in more normal circumstances would balk at the idea of throwing money at problems.

Yet in his statement to the House of Commons, Hammond announced interventions in the housing market, extra money for health and welfare, and £3 billion for “no deal” Brexit preparations — and all without much sign of tweaks to the tax system that would pay for them.

While only a few months ago, Conservatives mocked the Labour Party for resorting to a “magic money tree” to fund a manifesto packed with spending commitments, since June’s election left Prime Minister Theresa May without a majority in the House of Commons, Tory MPs from all sides have called on the government to loosen its belt.

“The problem we have is not the Labour MPs, it’s our own side,” one Conservative minister said. “They won’t accept [austerity] anymore.”

Britain’s Chancellor of the Exchequer Philip Hammond holds the red case as he departs 11 Downing Street to deliver his budget to Parliament on November 22, 2017 in London, England | Jack Taylor/Getty Images

The Office for Budget Responsibility slashed its growth forecasts Wednesday, and now predicts the British economy will be £65 billion smaller in 2020 than it had anticipated in its assessment in March 2016. By 2021-2022, tax receipts are forecast to fall by £20.6 billion — a sixth of the NHS budget.

George Osborne’s former chief of staff Rupert Harrison suggested on Twitter that the spending increases were, in effect, “Brexit insurance” to prop up the economy.

In a briefing after the statement, the chancellor’s aides agreed. “It’s to support the economy,” said one when asked why the bulk of the new spending was coming so early in the parliament.

The chancellor’s aides said he could afford such a splurge because he’d set aside £26 billion in his spring statement last year.

It was a neat answer, but according to the OBR, which provides the official economic and fiscal forecasts for the government, much of the early spending is simply funded by extra borrowing — £2.7 billion this year and an eye-watering £9 billion in 2018-2019, the year Britain leaves the EU. Austerity gave way in the face of a Brexit stimulus.

Saving his job

The Labour benches opposite the chancellor sat in glum silence as he picked off their core issues one by one, throwing money at the problems and riffing his way through his speech with jokes at their expense.

There was new cash for schools, tax rises on businesses were delayed and youngsters trying to get their first home were handed a major tax cut. There was even cash for the homeless.

Tory MPs behind him were jubilant, cheering and shouting “more, more” as he rattled off one fresh spending commitment after another.

Hammond did enough to earn supportive noises from both die-hard Brexiteers and the vanguard of the pro-EU Conservative troublemakers.

Jacob Rees-Mogg told MPs in the House of Commons he had been “encouraged” by the chancellor’s words about an “outward-looking, free-trading nation” — just the kind of positive Brexit spirit his critics have accused him of lacking.

Nicky Morgan, meanwhile, the Europhile chair of the House of Commons Treasury select committee, focused on the fiscal detail of Hammond’s statement, praising it as “a common-sense approach.”

However, the Brexit risk written into the OBR’s forecast, she said, assumed “a relatively benign” path ahead and a smooth transition deal, which, she pointed out, has yet to be secured. Despite his extra spending, Hammond had been right not to break the bank to please the Brexiteers, she added.

“Let us for the thousandth time dismiss the idea that a Brexit-induced fiscal windfall will relieve the pressures on our health service. There are no easy choices and there is no pot of gold under the Brexit rainbow,” she said.

Blame Brexit?

While Hammond’s political problems are immediate, Britain’s economic problems are not quite so painful yet.

“The economy will be £45 billion smaller in 2021 than predicted as recently as March. And that is the least worst-case scenario” — Liberal Democrat leader and former Business Secretary Vince Cable

According to the official forecasts there is no impending Brexit recession, depression or any other dramatic crisis. Instead, the U.K. is in line for a long, painful slump mostly caused by that other seemingly insoluble British problem — productivity.

Labour’s Shadow Chancellor John McDonnell mocked what he called a “nothing has changed” budget, recalling Theresa May’s infamous phrase during the Conservatives’ botched election campaign. He accused the government of underestimating the scale of problems in U.K. public services and said Hammond’s plan could only come from “an out-of-touch government with no idea of the reality of people’s lives and no plan to improve them.”

His assessment, at least as far as the NHS pledge was concerned, was backed up by the health service’s medical director Bruce Keogh who said the budget did not address the full “NHS funding gap” and would “force a debate about what the public can and can’t expect from the NHS.”

“Worrying that longer waits seem likely/unavoidable,” he wrote on Twitter.

However, Liberal Democrat leader and former Business Secretary Vince Cable was clear who was to blame. He said the government was near-powerless in the face of the “self-inflicted” economic damage of Brexit that, in part, explains the gloomy growth predictions for the next five years.

“The economy will be £45 billion smaller in 2021 than predicted as recently as March. And that is the least worst-case scenario,” Cable said. “Philip Hammond might as well have sat down and stopped talking once he announced this slump in growth figures.”

Charlie Cooper contributed reporting.

Original Article

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