The chancellor’s autumn statement should be the defining moment between now and Christmas. The moment when Philip Hammond grabs his first opportunity to give the economy a much- needed boost.
But now that the markets are falling out of bed it doesn’t look like it will live up to its billing. Instead, currency traders, spooked by the tough talk on Brexit from Theresa May and the intransigence from French president François Hollande, put the skids under the pound and for most of last week made all the news.
Hammond looks confident in front of the cameras, but listen carefully and it becomes clear he’s in a spin. While in New York last week, on his way to the International Monetary Fund in Washington DC, he downplayed the British economy’s health and, like a kindly doctor, said it needed some strong medicine. Repeating his conference speech, he said he’d step in to boost growth, which was weaker than many commentators had depicted.
A day later, he said the economy was robust, the Bank of England’s August rate cut had prevented a recession and all he needed to do when he stands up on 23 November was adopt a modest number of infrastructure projects. No splurge in public spending to keep the economy barrelling along.
Hammond is also twisting and turning as the winds of Brexit swing against him. He is seen as a saviour by many in the pro-EU camp following his conference speech, which put forward arguments for staying inside the EU’s single market.
Along with his new team of Treasury ministers, he has energetically consulted with business leaders and made it clear he will do everything in his power to negotiate a special corner of the single market just for Britain.
With Greg Clark, the business secretary, he defends the large businesses that are calling for some certainty and reassures them he is batting for their side in cabinet.
In the same interview, given in New York while persuading Wall Street bankers their operations in London are safe, he picked out the financial services sector for special treatment. “[It] is a very, very important part of the UK economy,” he said. “It’s the largest single-value contributing sector. And we will place a very high priority on getting the right solution with our European Union partners for the financial services sector.”
He went on to argue that it is only the poorest who object to immigrants, and even they don’t mind the highly skilled coming to the UK.
“You will not find, if you walk around towns in Britain and ask people how they feel about migration, that they have a problem with people with high skills and high earnings coming to the UK, because they recognise that those people are a positive contribution to the UK economy.”
Yet he knows there is no scheme that Brussels can agree which singles out low-skilled workers from those with high qualifications. Only once outside the EU will Britain be able to establish a points system that grades people according to skills or employability.
The long line of EU leaders who spelled out how the free movement of labour must remain a constituent of the single market emphasises the point.
Hollande, his finance minister Michel Sapin and Italian premier Matteo Renzi have all hardened their stance. Angela Merkel is less forgiving than she was before May’s hardline speech last weekend and long-time allies the Swedes conceded that they are fans of the common rules and laws, especially free movement of labour.
May’s advisers make no distinction between different grades of workers. As she said in her speech she wants more British doctors working in NHS hospitals, just as much as she wants foreign workers stacking supermarket shelves to swap their overalls with British-born workers. No 10 has also let it be known there will be no special deals for the finance sector or any other sectional interests.
Being constantly slapped down by his boss could be seen as mightily embarrassing to Hammond. It hasn’t come to that yet because amid all the chaos at the heart of government, it is difficult to discern who has come off worst. Hammond could use the autumn statement as a way out of the flip-flopping that has marked Tory Brexit discussions and what might generously be characterised as his evolving view of the public finances.
If the plummeting pound tells him anything, it is that the fears he expressed for the economy earlier in the week should be what guide him, not his more circumspect, Sir Humphrey-esque concern for a measured response. He should do more than tinker. He should give the green light to hundreds of projects already mapped out and waiting for funding.
He says the Treasury will not forget about the northern powerhouse and the combined authorities centred on Liverpool, Leeds, Sheffield and Birmingham. If he means that, he could fast-track much-needed funds northwards to where it is needed.
The deterioration in the government’s finances will rob him of some spending money. But if abandoning George Osborne’s deficit targets for the next couple of years and keeping the deficit at around 4.5% offers him a few billions of pounds in extra funds, he should spend it. He can’t score any goals with a defensive approach. It’s a time to be bold.
