Philip Hammond is facing a cabinet split over plans to use next month’s autumn statement to unveil a multibillion-pound boost to the economy.
Liam Fox, the international trade secretary, has privately warned that the chancellor must not go on a spending spree because it will make voters think there is a reason to panic over Brexit.
He has warned Hammond not to repeat the mistakes of his predecessor, George Osborne, and use the mini-budget on November 23 to create Project Fear Mk II by telling voters that new spending is required to stave off an economic downturn. Hammond has already abandoned Osborne’s commitment to balance the books before 2020 and is expected to unveil up to £20bn of new spending on infrastructure projects as well as moves to tackle poor productivity.
However, Fox told Tories last week: “There is no need for any economic stimulus in the autumn statement. The economy is in good shape. The last thing we need is a George Osborne-style emergency budget. We want a steady-as-she-goes autumn statement.
“We need common sense not hyperbole and panic. There’s no reason to panic. If you go on a spending spree people will think there’s a reason to panic.”
An ally of Boris Johnson said the foreign secretary would support “necessary” infrastructure spending but was concerned about a wrong message being sent to voters. “Boris thinks talking down the economy is a self-inflicted wound,” the ally said.
In a warning shot to Hammond, another cabinet source said: “All chancellors do a bit of talking-down to temper expectations. You soften the ground a bit so when it comes back stronger the surprise is on the upside. But any suggestion that we’re in a dark place and we need massive boosts would not be helpful.”
Last week, Hammond told a meeting of Tory MPs that he would not adopt a cavalier attitude to borrowing and the deficit. But the chancellor also believes the economy is in a post-Brexit “phoney war” and that worse may be to come.
He has privately revealed that, without some stimulus, growth next year could be as low as 0.8%, compared with an official prediction at the time of March’s budget of 2.2%. Hammond believes it would have been 2.5% if Britain had voted to stay in the European Union.
However, growth of 0.5% in the last quarter — better than had been feared — has emboldened cabinet Eurosceptics who think the economy is already on a strong course.
Claims that the economy can prosper from Brexit got a boost this weekend as a report by the pressure group Leave Means Leave found that the financial services sector would gain an extra £12bn a year in revenues as a result of the UK taking back control of regulation.
The report predicts Brexit will “accelerate” the UK financial services sector by freeing it from stifling Brussels red tape.
Richard Tice, co-chairman of Leave Means Leave, said: “As the world’s leading financial sector, the UK is facing a very promising and profitable future outside the EU. Being able to cut unnecessary regulation and bring back legal jurisdiction to the UK opens up a whole host of opportunity.
“The EU, on the other hand, faces a very difficult struggle ahead. It is essential that they secure a deal with the UK on financial reciprocity or they will see capital move from Frankfurt, Paris, Madrid to London.”
30th October 2016, Times