Budget: Britain’s prosperity is in the hands of diplomats now

UK fiscal management matters less than its future accord with the European market

Britain’s chancellor of the exchequer, Philip Hammond. Expect some well-intentioned futility in his budget on Wednesday. Photograph:  Stefan Rousseau/AFP/Getty Images

Britain’s chancellor of the exchequer, Philip Hammond. Expect some well-intentioned futility in his budget on Wednesday. Photograph: Stefan Rousseau/AFP/Getty Images

 

In a normal country in normal times, politics revolves around the size of the state, the extent of borrowing and the weight of the tax burden. In Britain, so much life has drained from these questions that if Philip Hammond failed to turn up for his first budget as chancellor of the exchequer on Wednesday, it is not clear who would mind.

The nation’s fiscal management matters less than its legal relationship with the European market a few years hence, and everyone knows it. Britain’s prosperity is in the hands of diplomats now. Looking back, the previous parliament’s gladiatorial showdowns between a nominally austere government and its avowedly Keynesian opposition amount to a provincial neighbourhood spat next to the high politics of the EU exit talks.

Hammond can tighten or loosen fiscal policy, push back or bring forward his deadline for budget balance – and cause minimal fuss either way. As long as he spends some money on health and social care to stave off a meltdown in those services, people will go elsewhere for political excitement.

Micromanagement

None of which condemns him to a pointless chancellorship. It is just that his point – the purpose of his office – has changed. Over the next few years, the Treasury should think of itself less as a finance ministry than as the nation’s principal slayer of bad ideas. It should be an intellectual check on the government to which it belongs.

The vote to leave the EU did not empower life-long Eurosceptics alone. Others who resented the way Britain is run read the result as a licence for momentous economic reform. When she became prime minister, Theresa May went along with this heroic interpretation of what was a narrow result on a narrowly drafted ballot question.

Ever since, ideas have circulated around her government that can be forgivingly described as creative. These include a French-style public-interest test for foreign takeovers, sector-by-sector immigrant quotas based on a rolling bureaucratic assessment of labour shortages and variations on the invincible theme of a “proper industrial strategy”.

There is some fringe talk of a post-EU pruning of labour laws, but the general tilt here is to micromanagement and technocratic fiat – to things the Treasury has learnt through unpleasant experience to resist.

Nicholas Macpherson, the highest civil servant there until last year, remembers sundry interventions aimed at Britain’s productivity problem in the 34 budgets he facilitated as an official. After all that work, he writes, “the underlying growth rate has remained stubbornly unchanged at about 2.25 per cent”.

Exposed

There will be more of this well-intentioned futility in Hammond’s budget. Training programmes and technology funds will proliferate to no great effect but to no great harm either. The dread is that clamour for a New Economy – a more scientific, less London-centric Eden to justify the two-year slog of EU exit – will cause these interventions to grow from the fiddly to the invasive without gaining a jot in usefulness.

Only the Treasury can see off this pressure. It has a suspicion of human schemes that comes from memories of post-War decades lost to a bungled corporatism. It has a chancellor, inscrutable though he is, who seems at one with this sceptical bias. It has institutional brawn.

And no one else will do it. The cabinet, few of whom entered politics to second-guess the private sector, is too meek. The Labour Party, even if it were minded to object, is a non-factor. A prime ministerial team formed by years inside the Home Office cannot be counted on to spot bad economic ideas – or to not propose them.

Free-marketeers who voted against the EU will learn the hard way that its rules on state-aid, non-discrimination and free movement constituted the ultimate curb on dirigisme. Without it, they are exposed.

Preventable dystopia

As Macpherson implies, Treasury cynicism is not informed by classical economics so much as a sense of the past. Britain’s poor productivity has exercised almost every post-War government. London’s monstrous superiority over other cities has been a fact of national life for half a millennium.

We cannot rule out that politicians have answers that never occurred to anyone before. But it is probable they do not, and in the process of finding out will throw good money after bad while squandering the economic openness that counts for some of Britain’s competitive advantage.

This is a preventable dystopia but only if the Treasury understands that the theatre of an annual budget now matters less than the attritional backroom work to kill, dilute, delay or at least scrutinise follies dreamt up in less wordly chambers of the state.

– Copyright The Financial Times Limited 2017

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