Getty Images.
Show Hide image

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.

Getty
Show Hide image

Leader: Trump's dangerous nation

From North Korea to Virginia, the US increasingly resembles a rogue state.

When Donald Trump was elected as US president, some optimistically suggested that the White House would have a civilising effect on the erratic tycoon. Under the influence of his more experienced colleagues, they argued, he would gradually absorb the norms of international diplomacy.

After seven months, these hopes have been exposed as delusional. On 8 August, he responded to North Korea’s increasing nuclear capabilities by threatening “fire and fury like the world has never seen”. Three days later, he casually floated possible military action against Venezuela. Finally, on 12 August, he responded to a white supremacist rally in Virginia by condemning violence on “many sides” (only criticising the far right specifically after two days of outrage).

Even by Mr Trump’s low standards, it was an embarrassing week. Rather than normalising the president, elected office has merely inflated his self-regard. The consequences for the US and the world could be momentous.

North Korea’s reported acquisition of a nuclear warhead small enough to fit on an intercontinental missile (and potentially reach the US) demanded a serious response. Mr Trump’s apocalyptic rhetoric was not it. His off-the-cuff remarks implied that the US could launch a pre-emptive strike against North Korea, leading various officials to “clarify” the US position. Kim Jong-un’s regime is rational enough to avoid a pre-emptive strike that would invite a devastating retaliation. However, there remains a risk that it misreads Mr Trump’s intentions and rushes to action.

Although the US should uphold the principle of nuclear deterrence, it must also, in good faith, pursue a diplomatic solution. The week before Mr Trump’s remarks, the US secretary of state, Rex Tillerson, rightly ruled out “regime change” and held out the possibility of “a dialogue”.

The North Korean regime is typically depicted as crazed, but its pursuit of nuclear weapons rests on rational foundations. The project is designed to guarantee its survival and to strengthen its bargaining hand. As such, it must be given incentives to pursue a different path.

Mr Trump’s bellicose language overshadowed the successful agreement of new UN sanctions against North Korea (targeting a third of its $3bn exports). Should these prove insufficient, the US should resume the six-party talks of the mid-2000s and even consider direct negotiations.

A failure of diplomacy could be fatal. In his recent book Destined for War, the Harvard historian Graham Allison warns that the US and China could fall prey to “Thucydides’s trap”. According to this rule, dating from the clash between Athens and Sparta, war typically results when a dominant power is challenged by an ascendent rival. North Korea, Mr Bew writes, could provide the spark for a new “great power conflict” between the US and China.

Nuclear standoffs require immense patience, resourcefulness and tact – all qualities in which Mr Trump is lacking. Though the thought likely never passed his mind, his threats to North Korea and Venezuela provide those countries with a new justification for internal repression.

Under Mr Trump’s leadership, the US is becoming an ever more fraught, polarised nation. It was no accident that the violent events in Charlottesville, Virginia, culminating in the death of the 32-year-old Heather Heyer, took place under his presidency. Mr Trump’s victory empowered every racist, misogynist and bigot in the land. It was doubtless this intimate connection that prevented him from immediately condemning the white supremacists. To denounce them is, in effect, to denounce himself.

The US hardly has an unblemished history. It has been guilty of reckless, immoral interventions in Vietnam, Latin America and Iraq. But never has it been led by a man so heedless of international and domestic norms. Those Republicans who enabled Mr Trump’s rise and preserve him in office must do so no longer. There is a heightened responsibility, too, on the US’s allies to challenge, rather than to indulge, the president. The Brexiteers have allowed dreams of a future US-UK trade deal to impair their morality.

Under Mr Trump, the US increasingly resembles a breed it once denounced: a rogue state. His former rival Hillary Clinton’s past warning that “a man you can bait with a tweet is not a man we can trust with nuclear weapons” now appears alarmingly prescient.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear