Philip Hammond’s view of Brexit Britain is now optimistic to the point of delusion

But if a Brexit deal is agreed this spring, a very generous spending review could follow. That means new money for social care, schools, police and the environment

Jane Merrick
Wednesday 13 March 2019 16:27 GMT
Philip Hammond's Spring Statement in 60 seconds

Philip Hammond’s Spring Statement was supposed to be a sideshow to Brexit, but in the end he used it to completely change the dynamic on the politics of EU withdrawal – and Theresa May’s future.

The chancellor, using the luxury of £3bn in lower borrowing than was forecast in the autumn budget, presented MPs with a tantalising choice: vote for a Brexit plan and see a “deal dividend” that he claimed would bring an economic boost as businesses invest in the economy, government spending rises on public services and more tax cuts for workers; or back no deal and face the “pain” of “higher unemployment, lower wages, higher prices in the shops” which, he said, was “not what the British people voted for in 2016”.

What was extraordinary was the chancellor’s clear departure from the prime minister’s policy of trying to force MPs to vote for her withdrawal agreement – now rejected twice in the Commons – or accept a no-deal Brexit. With May sitting right behind him, Hammond called for MPs to “map out a way forward for bringing a consensus” – meaning a compromise Brexit plan that was not the prime minister’s but would have the broad backing of all parties, rather than trying to appease Tory Brexiteers in the European Research Group.

After Tuesday night’s defeat, May’s authority was already severely weakened, but Hammond’s intervention marks a new challenge to the prime minister from inside the cabinet that she must change the course of her Brexit strategy. The chancellor had already given the PM a preview of his message at Wednesday morning’s emergency cabinet.

There is already speculation that, while she is protected from a backbench vote of no confidence in her leadership until December, senior cabinet ministers could persuade her to step down as early as this week for the sake of the Brexit and the country. By openly defying the prime minister, Hammond has just made that scenario even more likely.

Of course, the scenario he painted of a “deal dividend” is extraordinarily rosy, to the point of delusion, considering the dire state of the UK public services, with NHS waiting times struggling and headteachers having to pass the begging bowl round parents in order to fund basics like heating and lighting in schools. It is hard to reconcile Hammond’s picture of what he called a “solid foundation Britain needs to seize the opportunities that the future offers” with the current state of public services, housing shortages and faltering economic growth.

It is true that employment is rising to record levels, with 5 million net new jobs, that wages are rising, and that borrowing is significantly lower than under the last Labour government. It is also true that economic growth was hesitant this winter in part because of uncertainty over Brexit and so, it should follow, the economy could start booming after 29 March, if a deal takes place.

But the growth in wages comes after years of real-terms cuts in income for workers, while borrowing has been slashed after nearly a decade of harsh austerity which has entrenched the divide between rich and poor.

And even a smooth and managed deal on Brexit does not automatically translate into the booming economy that Hammond promised, given no future trade deals have been struck with major global partners, let alone a new relationship with the EU post-Brexit. A Brexit deal does not remove the cloud of uncertainty from the British economy. Far from it.

But in his Spring Statement, Hammond had two crucial things at his disposal which mattered politically, if not economically. Firstly, the chancellor had the serendipity of timing, in which he could deliver a devastating political intervention hours before a Commons vote on no deal – an intervention that could help lead the Commons towards a softer Brexit.

While the clock ticks down fast, and parties and factions are still at odds over how to proceed, this option has become marginally more likely than it was 24 hours earlier.

Secondly, he was able to use the extra fiscal headroom in the economy to announce some short-term spending plans to offer MPs a glimpse of what a managed Brexit deal could produce for the economy. Assuming a Brexit deal is agreed this spring, a potentially generous spending review will follow to conclude by the Budget in autumn, which Hammond said would see extra funding for social care, local government, schools, police, defence and the environment – all over and above the £34bn in extra money already allocated for the NHS.

Whether MPs from across the house accept the choice he set out is another thing entirely.

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