It was Hyman Minsky, one of the 20th century’s most formidable economic thinkers, who claimed “the game of policy making is rigged. The Prince is constrained by the theory of his intellectuals”. Minsky argued politicians – the Princes in his Hamlet allusion – who believed themselves above influence were, in fact, limited by the beliefs used to determine the options that are presented to them. Since 2010, the Conservative chancellor’s austerity has shown that the game of policymaking is rigged, and has become increasingly so. Austerity to a very large extent excluded policies that would have contributed to sustainable prosperity. Instead, it promoted a self-defeating idea that this country could retain its economic vigour by a form of economic bloodletting. This failed because throttling back on aggregate demand when the country needed it most left the patient gasping. On the ground, the result has been to extend privatisation and diminish the public realm. Voters are fed up with this approach. Philip Hammond is canny enough a politician to recognise that – in rhetoric.
That is why Mr Hammond claimed “austerity is coming to an end” during his budget speech and has chosen to spend government money on politically sensitive parts of the welfare state. More money for the National Health Service, for schools and social security is to be welcomed. Properly taxing global tech companies who have got away with paying negligible amounts of tax despite profiting from advertising in this country is a good thing. In some ways, as several have pointed out, this felt like a pre-election budget, with tax cuts and fuel duty freezes warming the hearts of traditional Tories, while turning on the spending taps defuses Labour’s attack. In doing so Mr Hammond has spent his better than expected tax receipts to present a crowd-pleasing budget. And he still has the room to borrow further. This hedging is understandable given the fractious politics of the Conservative party. The chancellor knows that the Tory party remains deeply divided over the prime minister’s Chequers blueprint for a future relationship with the European Union once this country leaves the EU. A “no deal” Brexit remains a distinct possibility. So he has retained the financial room to restore demand should a serious crisis befall this nation, which a hard Brexit surely would mean that it will.
Yet, in substance, austerity remains this government’s animating impulse. This newspaper welcomes the sentiment that, as Theresa May claimed, “austerity is over” but is sceptical that Mr Hammond is on a journey away from his intellectual homeland. The fact is that most government departments face drops in their real-terms spending per person for the next six years under Mr Hammond’s plans. Much of the chancellor’s extra spending goes to the NHS. Unprotected departments will be on course for deep cuts. Austerity is not over, it is being reshaped to meet the politics of the age. It is also meeting the brick wall of economics: governments run deficits as a rule. In the last 60 years, the government has spent less than it received on only eight occasions. It is purely ideological to suggest that a fiscal balance is virtuous in itself. Wisely Mr Hammond is silent on why this fiscal target has fallen by the wayside. But there is magical thinking at the heart of the budget: that business investment will revive by some wizardry; that job insecurity will keep a lid on wage increases at record employment levels; that indebted households could keep on borrowing to keep the economy afloat. Without reviving demand through government spending it is hard to see how a successful, broad-based recovery can emerge. When it does not, austerity must cease to be an article of faith – and lose its grip on those in power.
• This article was amended on 30 October 2018 to clarify the sentence beginning “In the last 60 years…”
