Philip Hammond kickstarted the next election battle with his Spring Statement

Road-testing Tory lines for the next election, he repeatedly promised a ‘balanced approach’ to the economy

Andrew Grice
Wednesday 14 March 2018 13:23 GMT
Spring Statement: Hammond labels Labour 'Eeyores' 'relentlessly talking Britain down'

The Treasury website gave Philip Hammond’s game away: 13 sections and 400 words of his Spring Statement were missing because party political content bashing Labour was removed by civil servants. The Chancellor was trying to make up for lost time. Theresa May’s aides kept him in his box during last year’s ill-fated general election campaign. They wanted nothing that looked like the Cameron-Osborne playbook. As a result, the Tories barely talked about the economy, traditionally their strongest card.

In Tuesday’s statement, Hammond kick-started the next election campaign, even though it might not take place until 2022. His constant attacks on Labour were an attempt to show he can “do politics” as well as economics. He knew that Tory Brexiteers wanted him to be upbeat about the economy, even if he privately fears the impact of Brexit. That is why he portrayed himself as Tigger and Labour as Eeyore, which is how Tory Eurosceptics view him.

He won Tory plaudits, even though there wasn’t much to be Tiggerish about. The economic forecasts did not show as big an improvement since last November’s Budget as Tory MPs had hoped. Though there was some good news on borrowing and clearing the deficit on day-to-day spending, the growth figures over a seven-year period were the worst for 70 years.

Spring Statement: McDonnell on Hammond- 'His complacency is astounding'

Hammond’s slimline statement was really aimed at Tory MPs rather than the public. His barbs at the Opposition revealed Tory jitters that Labour is winning the economic argument. Road-testing Tory lines for the next election, he repeatedly promised a “balanced approach” to the economy. This sounds bland but we will hear it as often as Cameron-Osborne banged on about their “long-term economic plan”. Ministers believe it will work on several levels – the Tories can share the proceeds of (albeit limited) growth (another throwback to Cameron-Osborne) between clearing the remaining deficit, investing in public services and tax cuts. More cake and eat it, in other words.

The Tories point to opinion polls showing that many voters want to see the deficit cleared and more money for the NHS. A “balanced approach” marks a shift away from austerity, which many Tory MPs want so the party can fight back against Labour. May has probably been urging Hammond down that route. The slogan also highlights the risk of Labour, and its “unbalanced” approach. Tory sources suggest their message to the voters at the next election will be: do you want debt to continue to fall, or to rise under Labour?

The problem is that, despite the small short-term boost to the public finances, their long-term sums may not add up. Hammond offered “jam tomorrow” on public services in his Budget this autumn. Cabinet colleagues will soon form a long queue at his door, with demands for money for health, social care, schools, housing, local authorities and defence – and that’s just for starters. The real battle will come next year when Hammond shares out the cake during a government-wide spending review, after announcing its size in the Budget.

His room for manoeuvre on public services may be limited – unless he is prepared to bite the bullet and raise taxes. But the Tories’ default position is to trumpet tax cuts, so they will want to continue to raise the personal allowance. It would be more honest to announce a ring-fenced tax rise for the NHS and social care, which might be more popular than many Tories imagine. There is growing support for this among ministers. A significant investment in public services – and to stop extra money being soaked up by long overdue pay rises – will require an end to the fuel duty freeze and some taxes on wealth.

Something in the “balanced approach” will have to give and the signs are that clearing the deficit entirely (including on capital spending) will again be pushed back from Hammond’s current target in the mid-2020s.

The other flaw in the Tory strategy is that there might not be a “feel-good factor” by the next election. For all Hammond’s talk about “light at the end of the tunnel”, low and middle income groups will not feel like austerity is being eased. Only a fifth of the £10bn of welfare cuts announced in 2015 have yet been introduced. Wages will not recover to where they were before the 2008 crisis until 2025. “The end of the tunnel is still a decade away,” said Torsten Bell, director of the Resolution Foundation think tank.

Although ministers deny that austerity is driven by ideology, the public will need some convincing. The danger for the Tories is that many voters might agree with Labour that austerity was a political choice rather than an economic necessity. To defeat Jeremy Corbyn, the Tories will need to spend real money on health, social care, schools and housing, which will require tax rises rather than the tax cuts they are still hooked on.

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