Budget 2017 Reaction

Homer Simpson - George Osborne - Budget - Annual Statement

This was a holding budget designed to buy the government some political breathing room, and so Philip Hammond kicked the can down the road on nearly all of the major fiscal and structural issues facing Britain

I intended this piece to be just a few disjointed thoughts reflecting on Philip Hammond’s Budget Statement and the boldness or cowardice of the Tories, but it gradually expanded to touch on issues of federalism and local government, and the counterproductive nature of the annual “Budget Theatre” itself.

A one-way ratchet to Bigger Government?

As Budgets go, this one was fairly bland and non-offensive. Contrary to the justified fears that Theresa May’s administration would be a one-way ratchet to Bigger Government, such ominous moves were largely missing from today’s statement – though of course we still have the highly un-conservative “Industrial Strategy” to come.

Equal to the challenges facing Britain?

It is hard to argue that this Budget in any way acknowledges the scale of the challenges facing post-Brexit Britain. A serious Budget which attempted to do so would have included a lot more on education and proposed a means to help re-train the many workers who will find their jobs outsourced or automated in the coming decades. £40 million to train new maths teachers is good, and any steps to improve Britain’s STEM output are welcome, but this does nothing to disarm the time bomb which will affect many of those already in the workforce.

A serious Budget would have done more than take tentative steps around the housing crisis, firmly addressing the supply issue now rather than tinkering with demand by abolishing stamp duty on properties under £500,000. It would have touched the third rail of British politics and defied the doctrine of NHS non tangere to meaningfully reform British healthcare and the way it is funded. It would have grappled with social care and the need to ensure that those who can afford to bear more of the cost of any care they require in old age.

But of course we got none of those things. And the great danger is that we will now never see these problems meaningfully addressed in the lifespan of this government. One can appreciate that Brexit is currently sucking much of the oxygen which might otherwise fuel other policymaking, but we should not have to choose between managing Brexit (which this government is also failing to do) and dealing with other long-term problems. It should not be too much to ask for the UK government to walk and chew gum at the same time.

Short-term thinking over long-term need?

A government’s first budget is normally a place where bad news gets dumped and difficult decisions made, the idea being that it is better to absorb public anger now and then win back favour with giveaways in the final budget(s) before a general election than have to anger people with harsh corrective measures later in the term. David Cameron’s government followed this approach, with Chancellor George Osborne doling out the harsher medicine (or plain confusion, in the case of the Omnishambles budget) in early years and then sweetening the deal prior to the 2015 election by pretending that he had solved all of Britain’s fiscal challenges and therefore had spare cash to throw around.

The fact that Theresa May’s government is not following this well-worn path is not a sign of some innovative new strategy – it is a sign of clear political weakness. The current Conservative government is already teetering on the brink, without a majority in the House of Commons and kept afloat in the polls only because of fear of Jeremy Corbyn. Philip Hammond therefore had no political capital to spend by irritating the electorate any further, or asking anything more of them; instead he was forced to try to accrue some political capital with a giveaway.

As I previously wrote:

Twice a year – once in the annual Budget and once in the Autumn Statement – the Chancellor of the Exchequer gets to his feet and delivers a refreshed set of economic policies in a big, set piece speech where he is essentially forced to favour tomorrow’s headlines over optimal long or even medium term decision making.

Nationally significant policies from every government ministry live or die by the concessions that their ministers are able to wrangle from a Chancellor who is forced by political reality to be more concerned with tomorrow’s Daily Mail headline than the state of our public finances in a year’s time.

Thus the annual Budget Theatre encourages short-term thinking. Whether one takes the Osborne approach or the Hammond approach, Budgets are as much about chasing favourable headlines and dominating the news cycle with positive coverage for a few days than they are about serious long-term strategic thinking.

Budget Theatre is a bad way of governing

This blog has long complained that this annual Budget Theatre, with all the speculation and press coverage surrounding it, is a really bad way to run a modern democracy. Why? Well, there are a number of reasons.

First of all,  as already discussed, the Budget spectacle encourages short-term thinking. Budget 2017 is something of a “giveaway” budget, with the government making concessions and seeking to tamp down public anger rather than taking difficult decisions in the long term. In short, it prioritises the political and tactical over the strategic.

Secondly, the Budget spectacle directly feeds into the Politics of Me Me Me, far more so than any other event, even general elections. During the build-up to Budget Day, the day itself and the immediate aftermath, we are encouraged by the media to think only about how the budget affects us and our wallets. This is understandable, since the Chancellor has the power to inflict severe pain or lavish great rewards on favoured groups. But it is also therefore an incentive for us to “ask not what we can do for our country, ask what our country can do for us”, to reverse John F. Kennedy’s exhortation.

As I wrote at the time of George Osborne’s 2015 Budget:

Having two occasions each year when an already-powerful chancellor in an already-centralised country like the United Kingdom gets to play with nearly all of the controls and levers which influence our economy – as though he were Homer Simpson at the controls of Springfield Nuclear Plant – only encourages meddling and tweaking of things that should properly be left to local government and individuals.

When you have direct, ultimate control over which families deserve help buying a house, which people should keep or lose their benefits or how much a person pays in sin taxes for their guilty pleasure, the temptation to use those powers is irresistible. And because of the ratchet effect, it is the easiest thing in the world to give away new perks to favoured interest groups, but nearly impossible to ever claw them back without being exposed to political attack. Even under this nominally conservative government, budgets and autumn statements have often been a one-way ticket to bigger government – or at least more activist state.

Unfortunately, Budget Theatre is inevitable when so many decisions affecting so many people are made centrally rather than locally, and applied at a national level rather than taking into account the specific and varying needs of different regions (or between the cities and the countryside).

And this leads on to my next point…

Britain’s overcentralisation disease

I continue to find it vaguely ludicrous that decisions about how much tax should be applied to a pint of beer or a litre of gasoline are set nationally in Westminster, and that we all have to tune in to the Budget Statement every year to find out what tweaks and incentives the Chancellor has seen fit to impose on our lives at the behest of the public health or environmental lobby.

Britain is a ridiculously over-centralised country in terms of governance. Devolution is a good thing in principle (though I would argue that we should move toward a federal UK with the same powers devolved to each home nation) but the net result of current devolution is that Wales, Scotland and Northern Ireland have rightly floated off to do their own thing in terms of domestic policy while England remains overcentralised.

We need to move to a place where local authorities, ideally county councils, take over some of the tax-raising powers from Westminster and gain more control over spending in areas such health, transport and education. We need to stop fearing the “postcode lottery” and start welcoming it as a petri dish for testing new policies and encouraging healthy rivalry between regions. More decentralised taxation and spending would force local politicians to put their money – or their electorate’s money – where their mouths are. If leftist politicians want to hike sales taxes or fritter money away on white elephants they should be free to do so, and then answer to voters.

Finally, enhancing the powers of local government in England would increase the current woeful levels of participation in local democracy as the decisions made locally suddenly started to matter a lot more. And this in turn would see an improvement in the calibre of people running for local office, and serve as an incubator for political talent outside Westminster.

Of course, some of the blame for the current situation rests with the Thatcher government, which felt it necessary to de-fang many local authorities since they represented such an impediment to the government’s turnaround strategy. One can argue whether or not this was justified, but certainly the end result is a country where far too many decisions and policies rest with the Westminster government when they should really sit much closer to the people.

Conclusion

This year’s Budget could have been a hell of a lot worse, given Theresa May’s interventionist instincts and tolerance for Big Government. Fortunately, Philip Hammond seems to have resisted such pressures and delivered a Budget which – if Britain were operating in steady-state with no major challenges on the horizon – would have been largely inoffensive.

Unfortunately, Britain is not in a period of steady-state operation, where domestic and international issues are stable and a technocracy is more than capable of fiddling with the switches and dials to keep things running smoothly. On the contrary, we have entered a period of discontinuity, an abrupt departure from our previous national trajectory, when the old political consensus is revealed to have frayed to the point of uselessness and bold new policymaking is required.

As I recently wrote, a bold new programme of coherent, mutually-supporting policies is required to equip Britain to face these oncoming challenges. The Tories now have the slogan, but it remains painfully clear that they do not yet have the solutions, though various initiatives are now underway to come up with some original new policies.

But it will take their time for these policy groups – notably George Freeman’s Big Tent and Nick Boles’ Square Deal schemes – to come to full fruition and develop workable policies. And even then there is no guarantee that Theresa May or the next Conservative leader will approve of these policies and work them into their programme for government.

Unfortunately, as a nation we are treading water at the moment, neither swimming toward the oncoming wave or swimming away from it as it threatens to break over us. This was a holding budget designed to buy the Tories some political breathing room and perhaps signal that they are starting to comprehend  public dissatisfaction with the status quo, particularly on housing.

But without some kind of joined-up, comprehensive plan – and a coherent message with which to sell it to the public – it is hard to see the Tories winning the kind of electoral mandate or public support they need to be anything more than a caretaker government.

 

Philip Hammond - Budget 2017 - Conservative Party - Tories

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