Philip Hammond on Brexit, austerity and being ‘deeply unpopular’

Every time Britain’s chancellor Philip Hammond makes a big financial statement in the House of Commons, his political obituaries are written. The argument goes that it is only a matter of time before Theresa May is ousted and the Conservative Eurosceptics take charge. The chancellor, it is widely assumed, would swiftly follow. 

Mr Hammond, scourge of the hard Brexiters, smiles and admits that whatever hopes he might once have had of leading the Conservative party have been wrecked by his decision to use his position at the Treasury to fight for the most business-friendly Brexit possible. 

“In doing so I made myself deeply unpopular with the group that actually decides the leadership of the party,” he admitted in an interview with the Financial Times in the dining room at 11 Downing Street.

“I decided to make the argument for the kind of Brexit I felt was the right one for Britain,” he said. “A Brexit that would protect British business, jobs and prosperity and would maintain a close trade relationship with the EU.” 

Mr Hammond promoted heretical ideas such as a two-year transition period to allow companies to adapt to Brexit and the need to maintain close regulatory alignment with Britain’s biggest market in the EU. 

I believe the forecasts we are working with at the moment don’t reflect the potential for a bounce in the UK economy later this year, if we see a deal and a smooth exit and a resumption of business and consumer confidence

“There’s no point banging your head against the wall,” he said, reaching across to the plate of crisps provided to accompany a sandwich selection. “In making the decision to argue the case inside the government for the most pragmatic approach to Brexit I’ve had to recognise that I’m not, shall we say, the most popular member of the cabinet in the eyes of party members.” 

Mr Hammond said the last rites have been read over his chancellorship every year since he took on the job in 2016, a sign of the rancour in the Tory party over Brexit rather than his economic record, which features slow but steady growth, falling debt and some of the best employment figures in 50 years. 

His unflashy style at the Treasury and sound stewardship of the public finances might have made him — in another era — a rather popular figure in the Tory party. He is not even a passionate pro-European: “I would have always described myself as gently Eurosceptic,” he said. But times have changed. 

Mr Hammond’s Spring Statement next week, a deliberately low-key event at which he will respond to revised official forecasts, will be overshadowed by Brexit. 

His message to Tory Eurosceptics is to grasp the deal on offer. “This is clearly the crunch point,” he says. “What I’m saying is that if you’re a Brexiteer you should think very hard about whether the perfect should be the enemy of the perfectly decent. The prime minister’s deal is a perfectly decent outcome for the UK.” 

He added that if Eurosceptics reject the deal again, a delay to Brexit would force parliament to “find a new consensus”; Labour leader Jeremy Corbyn is already talking to Tory MPs about a full customs union and single market membership. “It seems unlikely to me that such a consensus position would be more to the liking of my ERG colleagues than the prime minister’s deal.” 

He says the economic prize of securing a deal is significant. “I believe the forecasts we are working with at the moment don’t reflect the potential for a bounce in the UK economy later this year, if we see a deal and a smooth exit and a resumption of business and consumer confidence,” he said.

The 63-year-old former businessman and consultant said that a smooth Brexit would also allow him to “share the proceeds of an accumulated insurance fund” against a hard exit; it stood at £15.4bn last October but buoyant tax receipts are likely to pump it up further. 

I’ve clearly been more relaxed about the deficit than George. But to be fair, George set a hard deficit target at a time when he needed to lead a crusade

Mr Hammond said his Spring Statement would contain no new money to tackle knife crime or to increase school budgets, but promised that the cash would flow soon after if MPs settled Brexit and the Treasury could commence its spending review, due this year. 

Since arriving at the Treasury in 2016 Mr Hammond has become known as “spreadsheet Phil” but he suggested the austerity associated with his predecessor, George Osborne, is now over, and noted that he has already allocated an extra £150bn in public spending. 

“I’ve clearly been more relaxed about the deficit than George,” he said. “But to be fair, George set a hard deficit target at a time when he needed to lead a crusade.” Mr Hammond wants to keep overall debt falling, but made it clear that deficit reduction is no longer fetishised. 

Instead he will tell MPs on Wednesday that if Brexit can be settled, then at last — after a decade of financial constraints — Britain will be have “the luxury” of making a choice of how to spend the money coming into the exchequer. 

“Do we want to continue pursuing getting the deficit down as fast as possible? Do we want to release that bit of headroom to more public spending: police, schools, defence, whatever you fancy? Do you want to do even more on public investment? We are already at a 40-year high.” He expects a lively debate with Tory MPs about the scope for tax cuts. 

Mr Hammond considers that rising public investment will ultimately improve Britain’s woeful productivity record, which he believes is actually a strength. “In the way Deng Xiaoping understood that hundreds of millions of underemployed agricultural workers was a source of enormous strength for industrialising China, so the fact that we have low productivity means if we can unlock that conundrum, we can answer the question of where growth comes from in the next 10, 20, 30 years.” Germany, he added, cannot answer the question in the same way. 

Mr Hammond is in an upbeat mood, in spite of the cloud caused by Brexit and defying his Eeyore image. Maybe he is enjoying the luck of unexpectedly high tax receipts? “I don’t think it’s luck,” he admitted, arguing that it is the result of the tough decisions taken by both Mr Osborne and him. He said that if tax receipts had gone the other way he would have been accused of being “incompetent”. 

The chancellor has been accused by some pro-European colleagues of failing to join a revolt on Brexit, refusing to publicly threaten to resign if Mrs May refused to take a “no deal” exit off the table — unlike some of his cabinet colleagues. The chancellor claims his approach has been equally effective.

“I’ve chosen to do that from inside government and that means you can’t go out waving a banner when you don’t agree with something,” he said.