Scott James

Walk down any UK high street this week and it’s difficult to avoid the inevitable barrage of Christmas songs designed to entice shoppers. But Slade and Wizzard are not the only grounds for current Seventies nostalgia. Historically, you have to go back forty years to find a government with as little room for manoeuvre as the current one. It is against this backdrop that Philip Hammond delivered his second budget on Wednesday. With the Chancellor’s hands firmly tied, the consensus amongst much of yesterday’s media commentary was that this was a budget defined more by short-term statecraft than long-term strategy. To explain why, we need to understand how the current government is severely constrained by the politics of time. This is apparent in three ways.

First, the government is hamstrung by the UK’s bleak long-term economic outlook. The Treasury’s worst fears came to fruition as the independent fiscal watchdog, the Office of Budget Responsibility, dramatically revised down its growth forecasts from 2% to 1.5% for this year, 1.4% in 2018, and 1.3% in 2019 and 2020. It is difficult to overstate the significance of these revisions. As the New Statesman has pointed out, for the first time in modern history, growth is expected to be below 2% in every forecast year. With the prospect of public finances becoming even more stretched, and growth in real wages remaining stagnant for the foreseeable future, Hammond had little scope to distribute substantial budget largesse. There were of course some modest giveaways, such as the cut in stamp duty for first time buyers, £44bn for housebuilding and £1.5bn more for Universal Credit, to help secure a few positive headlines. But these did little to disguise the impression that this was an exercise in short-term crisis management, designed to mask long-term structural weaknesses in the UK economy, notably low productivity and the housing shortage. In essence, the UK’s economic underperformance cast a long shadow over yesterday’s budget, preventing the government from developing a coherent long-term vision for a post-Brexit political economy.

Second, the domestic political context produces a chronic short-termism within government. It is worth recalling how radically this context has altered since the last budget. At the start of 2017, Theresa May’s government looked pretty unassailable. The Prime Minister had set out a distinctive post-Brexit vision of Chamberlainian Conservatism, promising a more interventionist role for the state in crafting a new industrial strategy. By contrast, Jeremy Corbyn’s Labour Party was a weakened force, convulsed by internal party divisions and struggling to formulate a position on Brexit. With the government’s future looking relatively secure, Hammond delivered a high-risk budget in March 2017, pledging to raise National Insurance on the self-employed in an effort place the public finances on a firmer footing. With hindsight this now looks like over-confidence, as the subsequent media backlash forced the Chancellor into an embarrassing U-turn. Fast forward eight months and the contrast could not be more striking. Theresa May is living on borrowed time, fatally wounded by her party’s losses at the June General Election, while the cabinet is at loggerheads over Brexit. With the government effectively surviving from one Commons vote to the next, yesterday’s uber-cautious budget was aimed squarely at shoring up support on the Conservative backbenches. Yet what holds the May Government together more than anything else is the spectre of Corbyn. It is the threat of another General Election which, paradoxically, may enable a government which is convulsed by short-termism to survive for many years to come.

Finally, the elephant in the room remains Brexit. The timing and sequencing of the negotiations, over which the government has lost control, exerts a powerful temporal force over the domestic political agenda. Most importantly, the March 2019 deadline serves as an important source of business pressure. Firms are desperate for any signal that a deal on a two-year transition period with the EU is imminent. In the City of London, fingers hover nervously over the relocate button. Without some reassurance in early 2018 that a cliff edge will be avoided, financial companies will need to start implementing their contingency plans for a no deal scenario. This will result in a more substantial loss of jobs from the City than we have seen thus far, as banks are forced to adjust to the end of passporting rights by establishing fully-fledged subsidiaries in the EU27. Recognising this impending threat, Theresa May has made significant efforts in the last month to add new momentum to the Brexit negotiations. After a tumultuous autumn, she has skilfully managed to hold the cabinet together by securing agreement to offer £40bn to settle the UK’s ‘divorce bill’ in an effort to persuade the EU to open post-Brexit trade talks. Although there is now a genuine determination to reach a deal by early December, this is nonetheless a negotiating timetable which has been foisted upon the government by the European Commission. Viewed in this light, Hammond’s decision to dedicate £3bn towards Brexit preparations is an attempt to appease the hard Brexiteers in the cabinet and to provide some much-needed breathing space as the negotiations enter a critical phase.

Given the severe temporal constraints within which the May Government now operates, Wednesday’s budget served an important purpose. Above all else, it was designed to buy that most precious political commodity of all: time. To this end, the Chancellor probably did just enough to ensure that this won’t be the government’s Last Christmas.

 

Scott James is Senior Lecturer in Political Economy at King’s College London. He tweets @DrScottJames. 

Photo by Caleb Woods