The Chancellor should admit in his statement that his rules were misconceived from the start

Autumn Statement wishlist.

Unless he can find some dodge to circumvent them, George Osborne’s fiscal rules are likely to require him to tighten policy in the autumn statement through some combination of spending cuts (such as freezing welfare payments) and tax increases. At a time when the economic recovery is so weak and economists are speculating about the possibility of a ‘triple-dip’ recession this would be folly.

The Chancellor should admit in his statement that his rules were misconceived from the start. The first is, in theory, no constraint at all because it only requires him to forecast that the deficit will be eliminated in five years time, not to ever actually eliminate it. But in practice, he interprets the rule as forcing him to take action now in order to demonstrate he is still on track to achieve his five-year target. The second rule – that debt should be falling by 2015-16 – is a bigger problem; it can only be achieved by more tax increases or spending cuts.

George Osborne should adopt a new rule specifying that the scale of spending cuts will vary according to the strength of the economy. When growth is weak, spending cuts should be scaled back; when it is strong, they should be speeded up. This would increase the credibility of fiscal policy and allow the Chancellor to relax policy in the autumn statement. This should be done through what is clearly a one-off boost to spending, and the best way to do that is by providing additional resources for infrastructure spending in 2013-14.

Tony Dolphin is from the Institute of Public Policy Research

When growth is weak, spending cuts should be scaled back. Photograph: Getty Images

Tony Dolphin is chief economist at IPPR

Getty Images.
Show Hide image

Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.