The Lady is for turning: Theresa May has abandoned the government’s plans to increase national insurance contributions.
The upfront cost: a £2bn hole in the budget that will only get wider. The sweeteners to the self-employed intended to sugar the pill remain in place so self-employment is now even more attractive as a handy way to minimise taxation. That may accelerate the problem of falling income tax receipts that Philip Hammond wanted to head off at the pass.
Speaking of Philip Hammond, the other immediate cost is to his reputation. “Hammond’s humiliation” is the Telegraph‘s splash. “Hammond Egg On His Face” is the Metro‘s, “May forces Hammond into U-turn over budget” is the Times.
There’s a lot to go over here. The first is that a government in possession of a double-digit lead in the opinion polls and led by the most popular politician in the country can’t get a moderate and progressive tax increase that the public supports through Parliament. It doesn’t bode well for Brexit. As the FT puts it on their splash: “Budget U-turn raises doubt over competence for Brexit challenge”.
The second is the brutal beating handed out to the Treasury. Downing Street has made it clear where power lies in Whitehall. Whether the end of the imperial Treasury is a longterm consequence of the May premiership or just a temporary reality until Damian Green moves in remains to be seen, but is the reality nonetheless.
But even allowing for the PM’s bellicose streak, Hammond is highly unlikely to be sacked for the same reason the U-Turn happened: the majority is too small. The last thing the PM needs is another irreconcilable out on the backbenches.
The smallness of the government’s majority and the weakness of Labour means that what I dubbed “zombie hegemony” is here to stay: the Conservatives immovable in the country but at Westminster, they simply can’t move.
The row over election spending means that will get worse not better. Not because the government will struggle to win the replays if it gets that far – it looks likely that the central party will end up bearing the legal consequences – but because CCHQ and Downing Street’s handling of the row has embittered many of the MPs involved. They feel that they did nothing wrong and were left to carry the can instead of the people who actually decide things like battle buses and constituency visits. That anger isn’t going to go away if even the worst that happens is a heavy fine for the Conservative Party.
Does that mean we’re heading for a snap election? Well, any analysis of how we get there has to reckon with the Fixed Term Parliaments Act. Here’s a handy guide to that from the IfG , but the important thing is: an early election is in the gift of Parliament not the Prime Minister.
She needs not just a majority vote but a two-thirds one for a dissolution. It may be that Theresa May has something up her sleeve to convince a) the DUP to vote to give up its position of influence over the government b) enough Conservative backbenchers to vote for irrelevance and c) enough Labour MPs to vote for electoral annihilation. But I’m at a loss as to what exactly that could be.