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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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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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