Government ‘must hold nerve’ on fiscal policy, says Hammond

Chancellor Philip Hammond has pledged to hold firm on the government’s existing tax, economic and fiscal policies, despite pressure to spend more on public services and public sector workers

In a speech to the CBI, Hammond said it was ‘up to all of us in business and in government to make the case… for a market economy, for sound money, and for a tax system that incentivises enterprise and innovation. So that we can ensure that the fruits of the British people’s hard work over the last seven years are not wasted’.

Hammond is currently facing a £2bn shortfall after performing a U turn on the pledge to abolish class four national insurance NICs in the Budget in March 2017.

Taking aim at pressure to raise taxes on business in order to reverse cuts to public services, the Chancellor insisted there ‘has to be a grown-up debate’.

‘Without strong economic growth, we cannot support the improvements to public services that people want to see,’ he said. ‘We acknowledge that borrowing to fund consumption is merely passing the bill to the next generation and [we] reject the fallacy that the burden of additional taxation can always fall on someone else.

‘Then, hopefully, we can build a consensus that the only sustainable solution is to increase the trend rate of growth.’

One of the most substantial threats to the UK’s economy is the outcome of the Brexit negotiations, and while the Chancellor acknowledged the difficulties posed, he promised to ‘focus relentlessly on getting the key components right’.

That includes, he said, a ‘comprehensive’ free trade deal in goods and services; a customs arrangement that ‘minimises friction’ at the border and; a future relationship [with the EU] that ‘acknowledges our need to manage migration’.

Last week, Hammond blocked moves to lift the 1% cap on pay increases for public sector workers. The cap has been in place since 2010, but despite the public and political mood shifting in the wake of the Grenfell Tower disaster, the general election and warnings from the British Medical Association over NHS workers, Hammond insisted the cap remain in place.

He told the CBI: ‘The deficit is down but total debt is still too high and leaves us vulnerable to another shock of any kind. Our policy on public sector pay has always been designed to strike the right balance between being fair to our public servants, and fair to those who pay for them.

‘That approach has not changed; and we continually assess that balance. But we do, of course, recognise that the British people are weary after seven years hard slog repairing the damage of the Great Recession.’

Calum Fuller |Assistant editor, Accountancy magazine (up to 2018)

Calum Fuller is former assistant editor of Accountancy magazine and Accountancy Daily, published by ...

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