Theresa May wants to end austerity, but will Philip Hammond let her?
Whereas May has always been a slightly unconventional Conservative – more comfortable with using the power state to intervene – spreadsheet Phil’s passion appears to be fiscal prudence
Prime ministers and their chancellors have not always got on. Gordon Brown and Tony Blair. Geoffrey Howe and Margaret Thatcher. But what about Philip Hammond and Theresa May? Despite studying together at Oxford, there have long been rumours that they do not see eye to eye on some issues. In fact, on pretty much everything, from Europe to the reform of failing markets, and are reported to have clashed multiple times.
But with Theresa May’s recent spate of announcements – a new funding settlement for the NHS worth £20bn a year and then a commitment to the “end of austerity” – tensions might just have gotten worse. Because if there is one issue on which the pair fundamentally disagree, it’s on the size and role of the state, and on what it implies for fiscal responsibility.
Whereas May has always been a slightly unconventional Conservative – more comfortable with using the power state to intervene – spreadsheet Phil’s passion appears to be fiscal prudence. According to reports, when Hammond got the job as chancellor, George Osborne reportedly said to his friends, “If you think I’m dry on the economy, you should see this guy.”
During her speech at party conference this year Theresa May made a promise to the public. “Because you made sacrifices, there are better days ahead.” But not for Philip Hammond. May’s commitments on public spending directly contradict her other pledges at the election, notably to avoid taxes increases and to eliminate the deficit by 2025.
With the Budget next week – and, more importantly, during the spending review that will follow next year – the chancellor will have to decide which of these promises the government will break. The reality is simple: to end austerity he will either have to borrow more than he planned to or raise taxes to pay for higher expenditure.
The numbers involved are pretty scary. To ensure that no government department experiences any more cuts, and to reverse the squeeze on the benefits system – which is probably the most basic definition of the “end of austerity” – the government would have to find a staggering £31bn per year extra by the end of the parliament, plus the £20bn promised to the NHS.
Chancellors have always managed to find some spare change “down the back of the couch” when they have needed it most. But this is something quite different. There is not going to be a quick fix or an easy answer, just tough choices. It will take a brave politician to meet this challenge head on. Someone who fundamentally believes that a bigger state, set up to deliver social justice, is the right thing to do.
The reality is we need a conversation about tax in this country. We simply cannot continue to pretend that it is possible to have a Northern European-style welfare state and US levels of taxation. As the Institute for Fiscal Studies has made clear, while some of the money can come from wealthy individuals and corporations, all of us will have to make a greater contribution.
But here there is some good news. Despite chronic fear among politicians about broaching the subject of tax, the public does seem to understand the cost of not addressing the elephant in the room. According to the latest British Social Attitudes Survey, public levels of support for more spending and greater taxation are at their highest level for well over a decade.
This is therefore the moment to have a public conversation about the future of the state in Britain. Do we want to be America or do we want to be Sweden? There is growing evidence to suggest where Hammond would fall on this issue. The question is whether Theresa May is powerful enough to push through her own agenda regardless of his opinion.
For the sake of all of the communities across Britain who have suffered as a result of austerity, let’s hope May has it in her. Because her call to end almost a decade of austerity is the right one. The logic behind the cuts – if it ever stacked up all – has well and truly broken down. There is now little doubt that it is time for change.
Harry Quilter-Pinner is a senior research fellow at IPPR, the UK’s progressive think tank