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The big and dangerous difference between Philip Hammond and George Osborne that no-one is talking about

Philip Hammond, unlike George Osborne, has no fiscal rules. Here's why that matters. 

By Stephen Bush

Downing Street’s refusal to condemn Jeremy Corbyn’s new schools policy has people speculating that Theresa May could be preparing to steal the idea. (The proposal is itself borrowed from Labour’s 2010 manifesto, though the funding mechanism – to end the VAT-exemption on private schools – is new.)

That the idea has secured the support of 57 per cent of voters in the latest YouGov poll only adds to the appeal of nicking the scheme. When George Osborne was at the Treasury, there was one very big problem for the Conservatives whenever they tried to pinch a Labour policy – making it fit within his very tight fiscal rules.

But after Brexit, Osborne buried his fiscal rules and Philip Hammond, his replacement, has yet to devise any of his own. In fact, the only party at Westminster with any fiscal rules at the moment is Labour. John McDonnell’s fiscal rule gives the party considerable headroom as far as infrastructure spending is concerned – transport and other capital projects – but very little room to manoeuvre as far as day-to-day spending goes. (That’s why the pledge to make free school meals universal had to be accompanied by a revenue-raising measure.)

At present, Hammond has none. He has a commitment to balance the books “as soon as possible”. This is a bit like me saying that I will give you the tenner I owe you “next time I see you”. It’s only convincing if you believe I am likely to see you or I have any real interest in giving you your money back.

The big difference is that if I don’t pay you back, your options, short of taking me to a small claims court, are limited. But for the pension funds and insurance companies that hold around 28 per cent of British debt, or the overseas investors that hold 27 per cent of it, they have another option: they can sell it to someone else.

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The fear – whether real or imagined  – that investors in British gilts would panic and start selling their holdings was what led Nick Clegg and the Liberal Democrats to back the Conservative plans for a great pace of cuts than they had campaigned on in the election, with severe consequences for that party and the state of the public realm.

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As it stands,today,  none of the British government’s creditors are particularly worried about getting their money back. The United Kingdom is a large economy and has a political class that has, historically, been averse to doing radical and unexpected things.

Of course, the British people have just done something radical and unexpected in voting to leave the European Union. At the moment, the general expectation is that Theresa May will negotiate a Brexit deal that keeps the British economy ticking over in a way that is broadly similar to that of the economy on 23 June 2016.

But if the Brexit talks start to look dicey, or the global or British economy start to come under pressure for other reasons, the void where Hammond’s  re-payment  plan should be may go from being an underreported story to the biggest of all.