Embedded Files
21 November 2016
Andy Westwood - Professor of Politics at the University of Winchester and co-director of Policy@Manchester
Philip Hammond is facing significant political and fiscal challenges which mean his first Autumn Statement is likely to be a sobering affair
Winter is approaching, there’s snow upon the ground. The queue of bids for support is getting longer as we count down the days to this week’s Autumn Statement. Everyone wants to be at the front of the queue for new government investment with a justification why they should be a priority in post-Brexit Britain, explaining why the vote to leave also meant supporting whatever cause they represent.
The NHS (naturally), the CBI (infrastructure), Nissan and others. There is unfinished business from previous budgets too – with a need to find money to stave off the worst welfare cuts.
Unusually perhaps there is quite a bit of lobbying (or steering) from next door too. The Chancellor has been instructed by Theresa May to find some help for those ‘just about managing’ (or the JAMs). Since her promises on the steps of No. 10 back in July, there hasn’t been much to show for, save rising fuel prices or the prospect of more expensive holidays abroad. So their time is going to have to come and quick.
There was a time when Prime Ministers only heard the details of Budgets or Autumn Statements on the morning of delivery, but these days it’s rather different. Someone told Tony Blair in 1997 that he could – in effect – be his own education secretary. Roll forward to 2016 and someone has told Theresa May that she can be her own Chancellor, Foreign, Brexit, Trade, Business, Home and Education Secretary. There will be others to add to this list when she has time to get around to them.
But this is Hammond’s statement to draft. It’s a classic ‘you wouldn’t start from here’ moment. This could very well be the last Autumn set-piece because he has already said that he doesn’t see the point of having two big fiscal events in the year. He may have as much desire to reveal a plan for the economy as Theresa May wants to about Brexit. Either way, he just may not have enough material – or money – to fill two.
Philip Hammond is the living embodiment of small, prudent government. He is a traditionalist and not much of a political showman. He has already gained the nickname Phil ‘Spreadsheet’ Hammond from his colleagues. The kind of Chancellor that the economists in the Treasury like best of all. From time to time they also like a PM in waiting who wants to run the entire government. But for now that person is next door, and the Treasury finds itself in a different, more defensive mode.
So whatever his instincts, he has to knuckle down and get on with it. The country wants and needs more sense of direction. As Theresa May will eventually find out, you don’t always get to do the job that you want in the way that you want to do it. Signals need to be sent. To the JAMs, to business (particularly those who might be questioning their commitment to the UK), to the Brexiteers in the Cabinet and on the back benches and perhaps most of all, to those that voted leave and got a new Prime Minister along the way. She owes them and it’s Philip Hammond’s job to start fleshing out her promises.
But it’s going to be rather hard to find the cash for fuel duty freezes and reductions in air passenger duties, let alone Arts Centres in Pendle, by-passes in Norfolk or new traffic lights outside Epsom. Despite the pile of science and innovation audits on his desk, the same will be true even if he wants to try on George Osborne’s hi-viz jacket and announce a raft of new shiny, research facilities. But he’ll still be expected to deliver tax cuts, business incentives, new infrastructure and an industrial strategy. It’s going to be very difficult.
In a parallel universe (a.k.a Amazon Prime) another Hammond and May have had money thrown at them to indulge their every passing need. But back at home, their namesakes in government are finding the reverse. They may be running the show, but the budget looks rather thinner. There is no money – even less than they expected after abandoning Osborne’s fiscal rules and targets. ‘We are highly constrained’ said the Chancellor on Peston yesterday, amidst all the things he couldn’t or didn’t want to say. Abandoning the surplus target has broadly given them the wiggle room to just about stand still.
So he’s in a tight fiscal corner. And a political one too. Too downbeat and some cabinet colleagues will accuse him of trotting out Osborne’s Emergency Brexit Budget. Too much borrowing and spending – and he’ll be accused of unnecessary panic. Either way, he should be singing a happier, more upbeat tune – which doesn’t seem quite his style. He could deliver the speech and documents in the ‘post truth’ style of the Referendum campaign. As Mario Cuomo, the former Governor of New York, famously said, ‘You campaign in poetry’, but ‘you govern in prose’. As he already realises, this Autumn Statement is all prose. And grim spreadsheets.
The biggest story will be the numbers. What the Office for Budget Responsibility thinks about our prospects for growth and for its accompanying tax receipts and what the Treasury are prepared to do about them. How much less will they be than they were – and even the most fervent Brexiteers admit that there will be knocks in the short term. More borrowing at higher rates and the deficit will still be eye-wateringly high. The new forecasts will essentially reopen the last Spending Review which even in more optimistic times was based on quite heroic assumptions.
But in the early spinning of Wednesday’s statement, both Theresa May, ahead of her speech to the CBI, and Philip Hammond in the Sunday morning TV studios promised, amongst other things, boosts for science, research and development. What then might they be talking about? The best hopes for the higher education lobby are twofold. The first is to be treated like a vital export sector and in the queue for bespoke deals to protect it from the worst risks of Brexit. The second, if this is not forthcoming, is to dominate the list of commitments to the sectors and businesses that do get one. In his interview with Andrew Marr a few weeks ago, Greg Clark described science and research, skills and innovation as the promises that sealed Nissan’s recent ‘deal’ to stay and invest in the UK.
My guess is that the science – or perhaps tellingly – the research and development offer will be more on the demand than on the supply side. More tax credits and more incentives for firms to exploit science and technology rather than on more facilities or funding. The diagnosis of market failure is not in the laboratories, buildings or university departments, but in the lack of economic growth that should follow them. It is this that matters most and especially in the short to medium term. So that’s why we will get new infrastructure linking Oxford and Cambridge (and Milton Keynes) and why we already have a brand new junction on the A34 near Harwell. That’s why if Hammond takes anything from the Science & Technology Audits then it will most likely be the things that deliver more applied research, more skills, more jobs and more regional growth. Anything beyond that looks too abstract and too long term. At the moment that doesn’t look affordable.
The Autumn Statement might be a lot easier if he indulged in either poetry or post truths. But he can’t, and in any case Philip Hammond just doesn’t seem the type. There won’t be many prosecco corks popping at No. 11 on Wednesday evening and few anywhere else. This will be a sober statement about how the new government intends to manage the economy and a sobering set of numbers to go with it.
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