Philip Hammond is trapped in a prison cell of his party’s making. On one side, the chancellor is hemmed in by Tory MPs ready to veto almost any tax-raising measure that could give him some room for manoeuvre. On another there are his own and the Treasury’s conservative rules about what to do about the annual spending deficit, which they agree must drop to zero within the next 10 years.
Hammond is also cramped by the Treasury’s financial forecaster, the Office for Budget Responsibility, which shadows his every move with deliberately conservative predictions about Britain’s economic health. And finally, the chill wind that has blown the cell door shut is the ongoing uncertainty over the Brexit negotiations.
Plenty of commentators on both left and right would have him step outside these self-imposed conventions to spend more, cut more or push reforms at a faster pace. If he is to keep his party together, none of this is possible.
Thanks to the splits in his own party over economic policy and the impact of exiting the European Union, along with the decision to outsource forecasting to the OBR and his own conservatism he will be unable, on 22 November, to take more than one pace in any direction. He is doomed to please almost no one.
Hammond is well aware of the power wielded by his party’s fractious and increasingly unruly backbench MPs. Sometimes, as he listens to news on the radio or television, he must think that it is Jacob Rees-Mogg who is the final arbiter of government spending policy, not himself or his Downing Street neighbour.
It only takes a handful of Tory or DUP MPs to declare that this or that policy is unacceptable and Hammond’s ideas crumble in his hands, as he found in March when plans to raise just over £1bn from an increase in national insurance contributions for the self-employed was torpedoed by Rees-Mogg, among others.
The list of no-go areas is long. For several years, Tory MPs have effectively scuppered a rise in fuel duty in line with the retail prices index (RPI) so as to appeal to suburban two-car families. No matter that this would raise vital sums for the exchequer.
Manifesto commitments will force him to spend money on raising the personal allowance threshold for income tax from £11,500 to £12,500, and the income threshold for paying the 40p rate to £50,000.
With VAT and national insurance untouchable, and any thoughts of cutting benefits for pensioners and ending pension tax reliefs out of the question, he is left scratching around for small change down the back of the sofa.
No doubt he will claim to have has found a few more billion from clampdowns on tax avoidance. It is a theme that will play well with parliament and voters, especially following the Guardian’s latest Paradise Papers revelations of tax avoiders from Apple to Gary Lineker. But the tax wheezes used by the super-rich and major corporations, while ripe for further government attention, are among the few soft targets left.
No wonder Hammond has spent that past few months on one of the biggest charm offensives conducted by No 11 inside parliament in recent memory.
Where George Osborne before him was determined to develop a message for public consumption and stick to it through hundreds of television and radio interviews and appearances in the House of Commons, Hammond has remained resolutely inside the Westminster bubble.
Instead of developing a narrative to show that his tax and spending policies are the best possible in the circumstances, he has spent every spare moment convincing Tory MPs that because of the constraints placed upon him, in part by them, there is little he can do to satisfy short-term demands.
His obligation to stick to tight spending plans can also be laid at Osborne’s door, particularly his creation of the OBR, with its downbeat assessment of Brexit. Worse, the Treasury is braced for the OBR to downgrade future productivity growth, which will force Hammond to put a line through expected increases in tax receipts.
The result will be a forecast that robs him of at least half of the £26bn he allowed himself to offset the effects of Brexit between now and 2021.
Inside the Treasury, officials believe there is almost a 90% chance the OBR will be wrong, either because Brexit is much worse for the economy, or because it is better. Its an unusual situation to plan for, to say the least.
Yet, as any political historian will know, ignoring pleas for extra money from business and the public sector is a dangerous strategy. Hammond would be aligning himself with chancellors such as Roy Jenkins and Ken Clarke, who both put improving the long-term health of the public finances before demands for short-term spending only to help their respective governments – Harold Wilson’s second Labour administration in the 1960s and John Major’s first and only in the 1990s – go down to defeat.
He’d do better to confront the Rees-Moggs in his own party, only this time with a mix of higher borrowing and tax rises on the wealthiest that would in one thrust disarm those who put Brexit above all else. Because surely if they want Brexit, there are sacrifices to be made in the short term. Not just a bigger bill to Brussels. The British public deserves some generosity too.
