If the Conservatives maintain austerity, they will need a softer Brexit

Chancellor Philip Hammond has confronted his party with a clear economic choice.

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The end of the Conservatives' majority, it has been said, marks the end of austerity. But in his Mansion House speech this morning, Philip Hammond sought to dispel such hopes.

Though the Chancellor acknowledged that Britain was "weary" of fiscal famine, and even that the Tories had not "won" the argument, he warned: "We must not lose sight of the unchanging economic facts of life".

For Hammond, these are that higher public spending should only be funded through higher economic growth, not higher taxes or higher borrowing.

In reality, as the Chancellor tacitly conceded, he is doing plenty of the latter by postponing the elimination of the deficit to 2025 (15 years after George Osborne's original target).

But the signal was nevertheless clear: headline austerity measures such as the public sector pay cap and the freeze in working-age benefits will remain.

It was the second part of Hammond's argument, however, that was most notable. Having insisted that austerity must be maintained, he warned his Conservative colleagues that this would necessitate a softer Brexit.

The Chancellor demanded that EU withdrawal "prioritises British jobs, and underpins Britain’s prosperity" (an echo of Labour's "jobs-first Brexit") and repeated his assertion that "when the British people voted last June, they did not vote to become poorer, or less secure".

In practical terms, he said, this would mean the UK continuing to abide by Customs Union rules for an extended period and maintaining a liberal immigration system. He called for Britain to remain "open to the talent, the ideas and the capital that have driven the success of our economy in the past, and will drive it in the future".

In short, the government may have a target of reducing net migration to "tens of thousands" a year, but it should have no intention of meeting it (net migration most recently stood at 248,000).

Hammond's logic is impeccable: Britain cannot cut off one source of growth (through austerity) and then another (through "hard Brexit") – or at least not without baleful economic consequences.

Some Conservative Remainers go further than the Chancellor and argue that the UK must remain a member of the Single Market and the Customs Union (a battle Hammond lost at cabinet-level).

Some Brexiteers demand the end of austerity alongside the end of EU membership (though plenty do not). What no one can credibly do is argue for destroying growth in both directions.

George Eaton is assistant editor of the New Statesman.