When Philip Hammond declared the end of austerity last October, he garnered glowing reviews. Yet in truth he only protected the NHS, defence and international aid from real-terms cuts. With new forecasts, Mr Hammond says he can splurge more. The Office for Budget Responsibility (OBR) thinks the chancellor has £26bn to throw around; enough to ensure other departments do not have to endure flat or falling budgets.
The Guardian welcomes the Tory chancellor’s tone on spending, and the dropping of the absurd narrative that the financial crisis was caused by the moral failings of those too lazy to work. More spending on police is a good thing given the spate of horrific knife attacks. Funding to build 30,000 affordable homes is a crowd-pleaser. In calling for an investigation into the tech giants’ grip on digital advertising and time on gas boilers in homes, Mr Hammond burnished Tory modernising credentials.
But his pitch may be too good to be believed. There’s good reason to think there are not buckets of loose change down the back of the national sofa. The chancellor’s largesse is partly funded by the Brexit uncertainty depressing the interest rates the government pays on debt, hardly the most reliable stream of income given current events. The OBR points out that rates might rise and eat into the unexpected windfall. The economy itself is lifeless: GDP growth is down from 1.6% to 1.2% this year. Though employment is high, underemployment and insecurity dog the jobs market. Productivity growth is anaemic. Leaving the European Union will either puncture the British economy or blow it up. Mr Hammond’s giveaway is predicated on Britain leaving the EU with a deal. If no deal were to happen, his £26bn would be used to deal with the fallout.
The chancellor would benefit from interrogating his beliefs about the economy. Contrary to his claims, it is not running at full capacity. Quantitative easing has meant that banks are not short of cash – it is the opportunities to invest they lack. Consumer price inflation is flat. Interest rate cuts are at a point beyond which further reductions will have little effect on spending in the economy. However, fiscal policy can.
Mr Hammond’s vision of ending austerity ought to extend beyond public services to low-income households. He should think again over tax cuts focused on the UK’s richest families – and consider the proposal to turn them into a £48-a-week payment. Action needs to be taken to end the benefits freeze that is pushing families deeper into poverty. As the Resolution Foundation points out, the bottom fifth of households will be £100 worse off this year, while the top 20% will be £280 better off. All this during the worst decade for living standards in anyone’s memory. It makes economic sense to redistribute, not just because individuals receive help, but because there are benefits to the businesses where the money is spent. If Mr Hammond wants to end austerity, he will have focus on ending the lived experience of it.