As Philip Hammond rose to the despatch box to deliver his Spring Statement, the Chancellor must have felt like someone who wanted to talk about the funny noise the radiator was making half-way through extra-time of England’s World Cup semi-final last summer. Everyone’s attention was understandably elsewhere. If he was feeling mischievous he could have probably abolished inheritance tax, or slapped VAT on children’s clothes, safe in the knowledge that amid all the Brexit chaos it would have been safely forgotten by about 2pm.
And yet, even by his own lugubrious standards, Hammond surely missed an opportunity. There is nothing wrong with a bit of small-scale fiddling – a review of the link between bio-diversity and growth, for example, is no doubt worthy enough but hardly earth-shattering – but it doesn’t answer any big questions. In truth, the Chancellor should have seized the moment to assume ‘no deal’ and launch an ambitious strategy to steer the British economy through an abrupt departure from the EU.
Over the last few months, the Treasury has been reported to have a secret plan called ‘Project After’ designed to cope with the fall-out of leaving without any kind of transition. What’s in the mix? A move to zero tariffs, a deep cut to corporation tax, and a reduction in VAT. In fact, that is all fairly mainstream macro-economics. It looks like we will get zero tariffs, which will put us in the right place to move to World Trade Organisation rules without any serious increase in costs. It well also put pressure on the EU to negotiate a free trade deal as quickly as possible. But what about the rest of it? A five per cent cut in corporation tax would compensate companies for the hassle and cost of losing access to the Single Market (in a cost benefit analysis, some extra paperwork has to be balanced against far lower taxes than in any other major European economy). And a cut in VAT to 15 per cent would immediately stimulate demand at a time when confidence might well be starting to ebb out of the economy. It would be worth adding in a few other breaks. Taking the entrepreneurs’ rate of capital gains tax down to zero per cent would make the UK a very tempting location for French, Swedish or German app entrepreneurs even if we are outside the EU. While a five-year suspension of stamp duty (including for foreign buyers) would help keep the housing market healthy. Purists would quibble, but history tells us there is no such thing as a buoyant British economy that doesn’t have a bubbly property market.
It is not as if he couldn’t afford it. The public finances are in far better shape than could have been expected this close to our departure from the EU. The Brexit war chest may have as much as £25 billion in it, and accelerating wage growth means tax revenues are likely to stay strong. The forecast growth rate of 1.2 per cent is hardly spectacular, but far from terrible given the circumstances – and the UK is almost certain to see the strongest growth of any major European economy this year. True, Hammond may be preparing all those measures for March 29th if we do end up leaving the EU without a deal. But why wait? The chances of the ‘deal’ passing are now vanishingly thin, and the only sensible strategy is to work out how we make a success of leaving without a deal. ‘Project After’ should be turned into ‘Project Now’. And the Spring Statement would have been the moment to launch that.