A welcome voice of pragmatism from No 11

Posted on October 3, 2016

Britain's Chancellor of the Exchequer Philip Hammond speaks at the Conservative Party conference in Birmingham, Britain October 3, 2016. REUTERS/Toby Melville©Reuters

Philip Hammond, Britain’s chancellor of the exchequer speaks, at the Conservative party conference in Birmingham

In Theresa May’s new government, there is an inbuilt tension between those ministers who thirst for a quick and decisive EU exit and those whose innate wariness makes them want to move at a steadier pace. The chancellor, Philip Hammond, sits firmly at the pragmatic end of the cabinet table. In his first speech in the post to the Conservative party conference, Mr Hammond lived up to this billing, speaking soberly of the tough choices facing the British people. The public might have voted for Brexit, he reminded his party, but they had not done so “to become poorer or less secure”.

The absence of a gung-ho tone is welcome. Mr Hammond is acutely aware of the unpalatable trade-offs that lie ahead as the government sets about the task of delivering Brexit. The economy has performed better than expected in the months since the referendum but it faces a rollercoaster ride in the years of negotiations — as the chancellor told interviewers earlier in the day. Moreover, as he underlined, the UK still suffers from endemically low productivity and from stark disparities between the south-east and poorer regions.

    Mr Hammond has accurately diagnosed the challenge, and despite the praise he lavished in his speech on the achievements of George Osborne, much of what he said constituted an implied indictment of his predecessor. Perhaps understandably given the uncertainty about the economy, he was less forthcoming about the policies he will prescribe.

    Mr Hammond’s most important statement was to confirm that the government has scrapped Mr Osborne’s plan to achieve a budget surplus by the end of this parliament. This is eminently sensible: after all, Mr Osborne had already broken two of his three fiscal rules. Since most forecasters expect slower growth to hit tax revenues, the next set of public finance projections is likely to render the surplus target unrealistic.

    Mr Hammond chose to keep his options open on how he will manage the public finances: his own fiscal rules will follow in the run-up to November’s autumn statement. Yet he signalled that fiscal policy “may also have a role to play” in shielding the economy from turbulence — in particular, through a boost in infrastructure investment.

    It makes sense for Mr Hammond to loosen the fiscal corset to sustain demand should it show signs of faltering. If anything, the chancellor was too timid. He repeatedly assured his audience that there would be no departure from fiscal discipline, and the only concrete measures he mentioned were a relatively modest boost for housebuilding and construction on public land and smaller sums to support tech innovation. It is true that a slowing economy may leave limited room for
    additional largesse. Yet at present, the chancellor is under no pressure from markets: indeed, he can borrow 10-year money at as little as 0.74 per cent.

    Mr Hammond’s priorities beyond Brexit were relatively familiar. He stressed the importance of raising educational attainment, furthering devolution and supporting innovation. Encouragingly he also stressed the need to keep Britain’s doors open and attract talent from around the world.

    Britain’s economy remains in a phoney war with businesses and investors struggling to understand the implications of Brexit. Mr Hammond’s unenviable task is to guide the economy through the uncertainty while trying to influence the destination. It is to be hoped he will be able to make his voice heard. His sobriety is welcome. It may be much needed in the months ahead.

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