Insights

Hammond can build a legacy if he puts the focus on boosting trade

In the budget next week, the headlines will inevitably focus on the latest estimates for economic growth, borrowing and changes to tax. Labour will without doubt focus on whether the prime minister’s “end of austerity” rhetoric will match the reality. However, there is another question to which we will get further clarity. What is it that Philip Hammond, the chancellor, stands for?

While a budget is the collective responsibility of the cabinet, its character is irrevocably defined by the chancellor of the day. The last three each established a clear identity. Gordon Brown, Alistair Darling and George Osborne each left office having created a narrative – politically contended of course – of what they were trying to achieve.

By contrast, Mr Hammond generally eschews personal grandstanding. Indeed, when coaxed into introspection in an interview last year he described himself as “fiscal”. We can be fairly sure that Lynton Crosby, king of the memorable soundbite, is not on speed dial at the Treasury.

Having said this, the opportunity for the chancellor to define Hammondism is huge. The next decade will see an amplification of the pressures of an ageing population, a re-casting of the economy after Brexit and new technology that will need simultaneous fostering and taming. These challenges will need innovative answers if the siren voices of ever-higher public spending are not to overwhelm the electorate.

So where should the chancellor place his personal focus? To some extent Brexit and the immediate choices on tax and spending will be determined by forces outside his control. A slim parliamentary majority limits radicalism on near-term policy issues – as Hammond has already found out with the botched attempt at raising taxes on the self-employed at the 2017 Spring Budget. With recent sabre-rattling from his own backbenchers, cabinet colleagues and the DUP, the backdrop now looks even less favourable. Even his own prime minister has restricted his short term policy choices with a commitment to the NHS’s £20billion birthday present.

Longer term challenges are likely to be areas where the Treasury can make progress. The business environment for green technology leadership is one obvious area where the government’s record is generally progressive, if patchy.

However, a research paper published last week by the Centre for Global Development perhaps provides the context to an even more fruitful avenue. The authors of the paper found that up until the early 1990s high-income countries, including Britain, were largely maintaining their economic dominance over middle and low-income counties. But there has been a radical shift in the past 25 years as rich countries have seen their growth rates slow and poorer countries have begun to catch up.

The hard left and the reactionary right would like to see the UK take a more protectionary stance to address the impacts on workers from this rise of poorer countries. A combination of state aid to business and limits over free movement of goods, services, capital and people is at the heart of their populist prescription.

Admiring glances to the Trump economic agenda risk becoming a full-blown flirtation. The Hammond Treasury, however, can and should stake out an alternative path. What can be easily interpreted as a threat to the West’s economic dominance is also an extraordinary commercial opportunity. A growing number of countries with higher average incomes means a larger market for the produce of a high income country such as Britain. It is a shame that it took the tumult of Brexit to restore the focus of the UK’s trade and industrial strategies.

The trade commissioners sent out by the Department for International Trade to foster new relationships in non-EU markets have found their European counterparts already on site. Intriguingly, membership of a customs union has proved no barrier to countries like France and Germany pursuing these opportunities.

The budget provides a chance to boost these areas with an increased commercial slant to the UK’s foreign aid budget. While the industrial strategy needs hard-wiring into how each government department spends its money. Here are areas where Brexiteers and Remainers can unite, and Mr Hammond can really leave his mark.

A version of this piece was published in The Times.

 

Simon French

Economics & Strategy