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Why Philip Hammond hasn't made a radical break with George Osborne

The Chancellor has long been a fiscal conservative and Brexit dominates all else.

On 10 October 1974, the day Philip Hammond began at Oxford University, Harold Wilson's final Labour administration was elected. That government, Hammond later recalled, "ended in disaster" five years later. The "winter of discontent" was a formative experience for the future Chancellor. He came to believe that the "first responsibility" of government was to "promote economic stability, sound money, and prudent public finances".

Those who assumed that Hammond's postponement of George Osborne's surplus target was the prelude to a Keynesian spending splurge were always likely to be disappointed. The change in stance was an acceptance of reality, rather than an ideological statement. Osborne himself, renowned for missing his self-imposed targets, had already conceded that the goal was unachievable. Hammond's decision did not, however, mark the end of austerity. Unprotected departments have been asked to model cuts of up to 6 per cent by 2020. Osborne may have left the Treasury but under Hammond, his deputy from 2007-10, Osbornomics endures.

The new Chancellor's refusal to fund new spending through greater borrowing (preferring tax rises or cuts) is another mark of his fiscal conservatism. But there are other reasons why Hammond's first Budget on Wednesday will not herald a radical break with his predecessor. As an economic event, the Chancellor's statement is secondary to the triggering of Article 50 later this month. The deal that the UK does (or does not) strike with the EU will do far more to shape its destiny than the Treasury. 

Hammond, a teenage goth and swashbuckling entrepreneur before he was christened "spreadsheet Phil", has threatened to change Britain's "economic model" if the country is locked out of the single market. The Chancellor and Theresa May (who echoed his warning) have said little on what this would entail. But the implication is that the UK - a mainstream, mixed market economy - would aggressively cut taxation and regulation. Singapore is traditionally cited as a model, though the city state's dirigiste approach means the quasi-tax havens of Ireland and Luxembourg are more apt comparisons. The EU has long feared the economic harm that a libertarian UK could inflict on it.

The seeming incompatibility of this approach with May's vision of a reformed capitalism and a more interventionist state has led some to argue that the threat is a mere negotiating tactic. Others question why, if free market policies would stimulate growth, the government does not pursue them regardless of Brexit. But the Conservatives' focus on EU withdrawal means there is little pressure on Hammond from the Thatcherite right to do so. Eurosceptics are satisfied by the Chancellor's acceptance of their foremost goal: withdrawal from the single market. By way of return, Hammond, who has forged close relations with David Davis, has secured backing for a transitional arrangement.

As an instinctive pragmatist, Hammond's approach will be shaped by events. In the age of Brexit, the Chancellor's eschewal of political pyrotechnics is fortunate. More than most, he knows that the real action will take place elsewhere.

George Eaton is political editor of the New Statesman.

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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.