Phillip Hammond and the new interventionism

There was a lot to like in Phillip Hammond’s first conference speech as Chancellor of the Exchequer. But there was also a much less welcome shift towards further state intervention in the economy.

In stark contrast to Theresa May’s take-no-prisoners approach and Boris Johnson’s optimistic vision, Mr Hammond sounded a much more dour note on the UK economy’s prospects outside the EU.

The Chancellor backed Remain during the referendum and is known to have favoured staying in the Single Market. He made little attempt to disguise his reservations as he pledged to “protect jobs and living standards” from the threat of Brexit.

The process of leaving the EU will be a “rollercoaster” ride, said the Chancellor. “There will be a period of a couple of years or perhaps even longer when businesses are uncertain about the final state of our relationship with the European Union.”

Praising his predecessor as Chancellor, Hammond described the economy as “fundamentally robust.” He mocked former shadow chancellor Ed Balls for predicting in 2010 that cutting public spending would bring about a double-dip recession.

Instead the deficit has been cut by two thirds, the welfare bill reduced, and four million low-income workers taken out of income tax. Yet he abandoned the target of a budget surplus by 2020. Indeed he seemed almost ambivalent about the concept of obtaining a surplus at all.

The best parts of Hammond’s speech came when he lay out what he saw as the key challenges facing the British economy: poor productivity, low wages, and above all a lack of affordable housing.

The Chancellor sees productivity and economic growth as key priorities for the British economy. He also made it clear he sees it as the government’s job to deliver these. “If we don’t do something, if we don’t intervene… in time it would have an impact on jobs and growth”, he said.

“Where we see government interventions that work, we should be prepared to make them”, Hammond argued. He neglected to mention how, exactly, you judge whether an intervention is working or not before making it.

You expect this sort of language from John McDonnell, who only last week made the case for an “entrepreneurial state” funding projects and directing economic growth. You don’t necessarily expect it from a Tory chancellor.

Yet over the last decade, state planning has come back into fashion in a big way as politicians struggle to demonstrate to voters that they are capable of dealing with major economic shocks.

The major difference between Hammond and McDonnell is the extent to which the state should intervene: Labour want a completely state-dominated economy backed by a massive tax-and-borrowing spree. The Tories stand for a less profligate, mildly state-guided approach.

George Osborne was far from innocent in this regard. The so-called Northern Powerhouse and High Speed 2 are testament to that. Indeed, Mr Hammond went out of his way to praise his predecessor’s grand projects, promising to emulate them “across Britain” and joking about the difficultly of coming up with “snappy titles”.

As the Chancellor himself pointed out, Britain became a “hub of tech innovation” because of its “entrepreneurs and scientists”, not state planning. The sorry state of British manufacturing in the 1970s is testament to the inability of government to manage the economy. Keynesian demand management simply does not work.

“Driverless cars, Graphene, the Internet of Things, artificial intelligence, 3D printing, virtual reality, and advanced robotics” would never have existed if the state dominated technology and the internet.

We need a programme of economic liberalisation, not the state picking winners and losers. There is no supporting evidence to suggest that big government can deliver economic growth – quite the opposite. Smaller government; a lower tax and regulatory burden; a stable monetary policy; free trade; and a strong rule of law are the recipe for economic growth.

The Chancellor is known for being a quiet, thoughtful and intelligent man. That came through clearly today. He correctly diagnosed many of the threats facing the British economy. The problem is that he has prescribed the wrong solutions.


Chris believes strongly in individual freedom, personal responsibility, and the power of free markets to eliminate poverty by encouraging wealth creation. Follow him on Twitter: @cjmanby1989

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