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Philip Hammond is a tax conservator. He wants the taxes to be as low as possible, wants the government to balance its books and not be satisfied with the national debt at its current level.
The problem for the Chancellor when he is preparing for the budget is that he is part of an endangered race. There are not many tax conservatives, even in his own party.
Theresa May made life harder for Hammond by using the Conservative Party's speech to announce that the public needed to know that all their efforts to help restore the state's finances since the financial crisis had taken place its fruits and that austerity was over. Although the loan is not excessive, "the British people need to know that the end is in sight. And our message to them must be this: we get it. "
What the Prime Minister really meant by the end of austerity is open to interpretation. The Institute for Fiscal Studies says that at a minimum, this implies reducing planned spending in the Whitehall departments.
Another think tank, the Resolution Foundation, thinks that means going further and that more money should be found to cancel the fourth and final year of the benefits freeze and restore universal credit cuts.
On a political level, the definition does not matter: the era of austerity that began with the budget of George Osborne in June 2010 has come to an end.
This first series of measures emanating from the new Conservative-Liberal Democratic coalition administration has greatly harmed the economy. It slowed the recovery still in its infancy and put Britain on a trajectory of low growth and low productivity, which it has never really recovered.
However, in one way or another, Osborne's plan to reduce austerity as soon as possible and relieve pain made sense, and that was because as Chancellor he knew that the lesson of history was that voters would eventually tire of cuts.
If you look at the 1951 election, for example, Britain has been under strict rationing for more than a decade. The cost of the Korean War involved tax increases and a reduction in the weekly allowance of butter, cheese and bacon. As Ken Morgan wrote in his book Labor in Power: "The British public, after years of austerity, was now facing new, even more unbearable burdens."
In the 1951 elections, the workers' party gained a larger share of votes than before or after, but the fatigue of austerity took hold. There was a limit to the sacrifices that people were willing to make and, just as crucial, how long they were ready. ready to do them. At one point, between the 2015 elections, narrowly won by the Conservatives, and those of 2017, when they lost the majority, the climate has changed. The public decided that was enough.
Hammond's budget will take into account the new political reality. He has already said that he would find the additional money promised by the Prime Minister for health services, that he would freeze fuel taxes again, that the Treasury will allow local authorities to start building houses and that there will be a set of supports for the main streets in trouble. The Chancellor also used his prebudget interview on the BBC 's show Andrew Marr to let out a broad hint that there would be more money for Universal Credit.
Still, Hammond's budget message will be that it adopts a balanced approach: additional spending but with a view to keeping taxes low, reducing debt as a share of domestic production and investing in the economy. future of Britain.
Achieving these four objectives will be difficult, even taking into account the marked improvement in public finances observed since the spring. During the first six months of fiscal 2018-2019, the government borrowed just under 20 billion pounds, nearly 11 billion less than the year before. This improvement should persist and offer the Chancellor a useful margin, but will not be enough to achieve the four goals. Something will have to yield: either taxes will have to increase, or Hammond's debt and deficit targets must be reduced, and spending restraint will have to be maintained.
The preparation of the Chancellor's budget was also clouded by uncertainties regarding Brexit. To date, the Treasury expected the form of an agreement to be clear, but the fact that many results were still possible meant that Hammond felt the need to maintain sufficient budgetary firepower. to react in case of failure of negotiations. It's a budget that could quickly be overtaken by events.
Even in this case, the moment is still political, because the government must be able to put an end to austerity, whatever its definition, so that it does not seem to be a defeat or an admission that all the sacrifices have been granted. for nothing. As the fall of the last Labor government shows, it is essential to keep control of the story.
In three successive elections (1997, 2001 and 2005), the Labor Party declared that the economy needed public investment more than tax cuts. Throughout the debate, the Conservatives have been relegated to the background.
In 2010, the argument was reversed. David Cameron became Prime Minister because the elections were based on which the party was best equipped to cut spending. We now have the feeling that the terms of the debate are changing again, the Labor Party claiming that eight years of austerity have been both painful and harmful for the economy. Hammond must convince the public otherwise; and it's quite a challenge.
