Philip Hammond is going nowhere – or so he wants you to think. For months, the chancellor has faced a guerrilla campaign from his cabinet colleagues and backbenchers for his sacking and replacement by someone more Brexity, someone more spendy; someone more, well, happy. Wednesday’s budget was his response to all the back-biting and poison briefings. Hence the opening optimism about a Britain “fit for the future”. Hence the jibes at plotter-in-chief Michael Gove and his “economicky” terms. Hence the attempt to craft a budget that told a coherent story about a country with less money but lots of pluck, and a government unveiling the biggest housebuilding programme in a generation. Headline-grabbing policies, personal pugnacity and a tank full of mediocre jokes – these are the classic signs of a chancellor trying his best to reverse out of a dead end.
Whether that will be enough to save him from the next round of blue-on-blue warfare, Boris alone knows. But on the economics, Hammond is also going nowhere. He runs a drifting economy, while No 11 devises nothing-y plans that will do little to fix things.
The dismal old rules of news management demand that the bleak economic projections conveniently leaked weeks ago make lesser headlines than the shiny spending measure pulled fresh from the magician’s hat. But it’s the economics that actually shapes the public mood, long after they have forgotten the rest. And the outlook presented today is terrible. In the two decades I have covered budgets, I cannot remember a chancellor admitting that at no point over the next five years will GDP grow by more than 2% a year – not even after the banking crash. Yet that is what Hammond said. And Britons’ earnings will be squeezed hard, even as inflation remains high. If, as I believe, these are the main metrics by which voters judge governments then Hammond and Theresa May and the rest of their gang are toast.
This isn’t prosperity. It isn’t progress. It is a nation mired in deep black sludge. Brexitannia is a parochial little spot that mostly ignores the rest of the world, as the global economy enjoys its best growth in years. After years of post-crash trauma, Europe is starting to pick up speed. Beijing has spent enough billions to keep China going. Even the previously sickest developed economy, Japan, appears to be enjoying a modest recovery – just as Britain appears to be heading towards two lost decades. All of this, mark you, before we have an idea of how much leaving the EU will cost our exchequer or our economy.
Our economic-policy establishment is slowly waking up to the realities of post-crash Britain. For years, the Office for Budget Responsibility (OBR) and the Bank of England have blithely assumed that the economy will eventually recover its pre-Lehmans jauntiness. For the past 16 budgets and Treasury statements, the OBR has taken as read that productivity will end up growing by 2% a year, far below the reality of around 0.5% a year. The Bank has spent most of this decade reckoning that average wages would grow by 4% a year; it has actually been around 2% a year. The pillars of British economic policy have essentially misread the British economy for the past decade – longer if you consider the Bank’s largely lamentable record on the financial crisis.
This isn’t academic . Those forecasts served as George Osborne’s political cover, allowing him to pretend that he could get away with slash-and-burn austerity and that everything would still come out right. Had the British state faced up sooner to the economic predicament, its various arms could have been forced into more radical action. It’s possible to imagine, for instance, that it might have spurred Ed Miliband to dump austerity-lite and mild social democracy. Or that the Bank would have stopped pumping hundreds of billions into the financial markets and started investing directly into infrastructure in the north-east. Instead, we were served up fantasy forecasts of a happy ending that were trounced by grim reality – and Britain voted for Brexit.
Hammond and May faced a stark choice after that referendum: stick with failed Osbornomics or go for a big economic stimulus. Only the second would have given them a fighting chance of reviving both the economy and their party. After some prize rhetoric about how “a change is coming”, they plumped for Continuity Osborne. That’s essentially what Hammond did on Wednesday afternoon. The few hundred million that he is now chucking at the debacle that is universal credit does nothing to alleviate the cuts to claimants’ incomes. As for cutting the six-week wait for payment to five weeks, I asked a manager of a service that provides benefits advice what difference that would make. Her reply: better than a poke in the eye with a sharp stick. But the flaws she sees with universal credit are deep-rooted: “It’s a system designed by people who are paid monthly and have probably got savings, and friends and family who are not themselves teetering on the edge of bankruptcy. And it is being imposed on people who are paid weekly, aren’t able to put aside money for a rainy day and whose friends and family are in the same boat and can’t help.”
I think she’s being kind. By 2022, a further £12bn a year will have been cut from the social security budget, bringing the total cuts made by the Conservatives to an estimated £41bn a year. The Tories’ tax giveaway to big corporations on the other hand will cost us around £12bn a year; the raising of income tax thresholds, which largely benefits the wealthy, will cost £22bn a year by 2020. But then, poor people don’t vote Tory, do they? Nor do they make donations to political parties or write newspaper columns.
The much-trumpeted cash for housebuilding that will supposedly bring forth 300,000 new homes a year is actually less than the cut in stamp duty Hammond has given first-time buyers. The problem with the stamp duty cut is that the OBR thinks it will actually push up house prices for first-time buyers. “The main gainers from the policy are people who already own property,” it concludes.
This is Conservative political economy writ large: look after the asset owners, in the hope they’ll look after you at the polls and eventually pass on the assets to their kids. This is the party that touts giving out railcards to the under-30s as a serious contribution to intergenerational fairness.
But that’s the diminished state of Tory economics in the face of a tanking economy with structural problems that grow graver by the year, and a public that flits somewhere between sullen and mutinous. And that’s Hammond: a real nowhere man, making all his nowhere plans for nobody.
• Aditya Chakrabortty is senior economics commentator for the Guardian
