Issue 176: 2018 11 01: Budge Over

1 November 2018

Budge Over         

A matter of colour.

By J.R. Thomas  

Mr Hammond sat down on Monday this week at the end of his October 2018 budget speech to be closely hugged by two ladies in bright red.  No, they had not been sent across the floor of the Commons by Mr Corbyn to thank Spreadsheet Phil for a job well done. One was Liz Truss, Chief Secretary to the Treasury, and the other was Mrs May, still Prime Minister.  Both ladies had both turned up in red dresses of a similar hue.  The Chancellor was in blue and doing his best to look cheerful; but one suspects uncomfortably aware of the deep symbolism of what was going on; Tory blue squeezed by the bright red of socialism.  Mrs May indeed appeared to be trying to steal Labour’s clothes, in the most literal sense.

Certainly John McDonnell, Mr Hammond’s Labour shadow, rising to give the response to the Budget Statement, seemed more than a little disconcerted by what he had just heard, and perhaps seen.  The budget response is one of the most difficult speeches any politician ever has to give – the shadow chancellor gets only an hour or so advance time to peruse what is in the statement, and for a long and relatively complex budget such as yesterday’s that is almost impossible.  Somehow the rising shadow has to see both wood and trees and make sense of the strategy and detail, and make reasoned and politically astute criticisms.

It must have been the strategy that was throwing Mr McDonnell on Monday; the May/Hammond approach seems to be further stealing of Labour garments, with some serious big spending announcements.  Phil has abandoned any intention of achieving a balanced budget or reducing the deficit – something that would have come to pass in the next couple of years had he not moved so firmly against it.  He is taking the Brexit bonus now, before he even knows how or when we will Brexit, at what cost or on what terms or to what benefit.  The biggest spending announcement of all was that almost £20bn a year is to be flung at the National Health Service.  That is to be around £20bn per year for five years, and that is extra, on top of the existing budgets.  And as no government will ever have enough political capital to cut what is spent on the NHS, that really means £20bn per year extra for ever.  Mr Trump must be watching with great interest as to what happens when governments make free universal health care available; expect that theme to appear in his 2020 presidential campaign.

The traditional Tory causes were not ignored though; there is another £1bn for the armed forces.  That does not sound a lot and it isn’t; it will though cover the massive deficit that is rumoured to be causing troubles in the Ministry of Defence.  Nothing for the police, maybe as a warning to the politically ambitious Sajid Javid that his route to No 10 can be obstructed by the present occupant.  Lots of mullah to try to make the Universal Credit scheme work; and £400m for schools and £420m for filling in potholes.  But best of all for most of us; the increase in income tax personal allowances scheduled for 2020 and then very strongly rumoured to be about to be delayed a couple of years, is brought forward to next year.  Hurrah, say all of those who don’t mind being bribed with their own money.

The age of austerity is over, said the Chancellor.  No, it isn’t, says the shadow Chancellor, not sounding terribly convinced by his own argument that the government is still too tightly controlling spending.  As Mr McDonnell must know, it is hard to see how the government could not control departmental spending to some extent; what is the Treasury to do?  Install a banknote printing press in each department, with only an “on” switch?  And so many of John Mcd’s wishes have been granted, not only the money bath for the NHS, and freezing duties on fuel, and no doubt pothole repairs, but even, an end after 35 years or so to the Public Finance Initiative.

The what? PFI, the application of Thatcherite financial disciplines to public sector capital procurement, is to be scrapped.  See all those new hospitals, motorway enlargements, sparkling new schools and even whizzy new trains?  All those are the product of PFI, whereby the private sector competitively bids for and then finances the objects of desire, maintaining them and operating them, renting them to the public sector over very long leases.

If anything could mark the end of Thatcherism, it must be this.  Back to the old system of the public sector procuring and building and operating.  PFI was not always the most successful way of working, but like democracy, it was generally better than the alternatives.  The problem perhaps is that the private sector has become too good at laying off all the risks back to the public sector, something which the collapse of the building and services contractor Carillion last year made only too obvious.  The converse is that the public sector has become increasingly reliant on the private sector to make things happen, and negotiating, not always modern Whitehall’s key skillset, has become increasingly weak.  Which might not suggest that future procurement and operation is best done by civil servants.  But Phil’s statement was light on what replaces PFI; for the time being we will assume a splendid plan from which the best of all possible worlds will emerge.

So what is going on?   The very subdued response of most Tory M.P’s, and the hissing from most right leaning political commentators suggest that this, if intended to be a budget to comfort the party faithful, has woefully missed that target.  What Mrs May is about is probably twofold, one fold being very short term, the other more medium term.  The short term is to try to get the party back behind her, and in particular the Chequers plan for Brexit.  Nobody missed the implication of the Chancellor’s remark that this budget will have to be returned to base if an agreed Brexit is not in place by next March.  The key word is “agreed”.  If we leave without anything in place: forget the tax concessions and pothole repairs.  It will literally be a bumpy road ahead.  The medium-term objective is patently obvious too; Mrs May wants to win the next election, into which she expects and intends to lead a rejuvenated and grateful party.  Her great idea is simply to steal most of Labour’s clothes (spending) whilst keeping her own voters on side (tax cuts).

It’s an approach, to be sure, and maybe Mr Corbyn’s fading but still alarming reputation will persuade enough traditional Labour voters into thinking that the Tories are actually Labour-Lite for it to work. But it’s not really what the Conservative Party is about, as the glumness of the back benchers on Monday underlined.  There is also the minor difficulty, alluded to on Monday by Roger Bootle and other economists, that it is economically illiterate. Long term budget deficits lead in the end to disaster; to inflation, to higher and higher taxes, to swingeing cuts in spending.  The Tories will not be forgiven for stealing Labour’s clothes if they turn out to be rags.  Back to dressing in true blue, Prime Minister, it will suit you better in the end.

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