And at least in those days of Coalition, the government had a healthy parliamentary majority to push through unpopular measures. This Chancellor now faces being held to parliamentary ransom by angry Brexiteers, populist Tory backbenchers, and of course those hard men (and women) of the Democratic Unionists. In short, Philip Hammond has nothing to “giveaway”, and limited capacity to raise revenue.

“The Chancellor should be applauded”, Hammond himself told the Cabinet in 2012, for “finding a few old bones and cans of soup in the back of the kitchen cupboard and turning them into a rather impressive dish”[1.  David Laws, “Coalition”, 2016.]. Will Hammond (2017) be a re-run of Osborne (2013)?

However tempting, timidity would be a great mistake for the economy, for our social cohesion, for Mr. Hammond, and indeed for his party. Mr. Hammond needs to be bold – but to do this he also needs to be clever.

There are in my view four key tests of boldness:

• action on the budget deficit;
• decisions on public spending;
• the strategy for “ordinary working households”; and
• the preparations for Brexit.

Let us take each in turn.

The temptation on government borrowing will be to be timid at best, or dangerously profligate at worst. With the longer term borrowing figures likely to be inflated by the downward revision to productivity, Hammond could simply push the date of a balanced budget out even further or “go for broke”, by making a virtue of “borrowing to invest”.

But now is not the time to go “weak and wobbly” on the ambition to wipe out the deficit. The UK needs to restore strength to its public finances before the next downturn, and before the adverse fiscal effects of an ageing population begin to bite. And a fiscal boost is hardly what the economy needs at a time when (rightly or wrongly) the Bank of England has delivered its first notching up of interest rates for a decade. A bold Chancellor would respond to deterioration in longer term borrowing (the numbers for this year and next are likely to be fine) by raising more in tax revenue beyond 2020 (avoiding near term political pain and parliamentary risk) – by targeting those reliefs and allowances of most advantage to those on higher incomes. Meanwhile, the Chancellor should commission a review of government investment spending to identify that which truly yields a real return to the Exchequer (such as spending on housing and transport schemes). In the long term, a new fiscal rule allowing borrowing on such productive investments (but not on all public sector capital projects) would make sense.

That takes us to “test two” – public spending. It is obvious that there are at least two major priorities which need attention. The first is the NHS. The NHS was well funded by Labour prior to 2010, so when the Coalition put the brakes on spending, the health service could absorb the austerity for a few years. But ever since 2013, NHS service standards have been slipping, and health spending clearly now needs to grow again materially each year to meet inflationary pressures and higher demand, including from an ageing population. With the exception of Jeremy Hunt and NHS Chief Executive Simon Stevens, nobody in this government shows any sign of understanding that the NHS is heading for a brick wall very, very, fast. An extra £1bn here or there, drip fed out over the next few years, simply won’t make much difference. Unless the NHS receives a bold, multi-year, settlement in which real spending grows at somewhere between 2% and 4%, there will be serious consequences both for patient health and eventually for the government’s political health.

Housing needs greater priority too – which at last seems to be recognised. This is not just about money, but money is almost certainly part of the solution. And if the government’s target of 300,000 homes per year is to be taken seriously, Mr. Hammond must think big and be bold.

Test three is about those “ordinary working families” or the “just about managing”, or whatever the slogan now is. Remember them? They were supposed to be Theresa’s May’s great political priority, until someone realised that the government simply hasn’t got a clue what policies might help or much enthusiasm to make a difference. But what could be done? Plenty. Plenty that could actually be targeted very well. Why not raise the starting point at which low paid workers pay national insurance contributions? It’s currently barely above £8,000 per year. And raise the rates a bit on higher earners to claw back the money. Next, how about making council tax – that miserable, regressive, tax – a bit less regressive? Cut council tax by 25% for smaller properties – this will particularly help those on lower pay in work (who cannot claim council tax benefit). And with inflation higher than expected, how about moderating the Osborne inspired benefit freeze, that hits the low paid working and non-working families alike, and which will if unchecked propel poverty rates higher. Could any of this be afforded? Of course it could – Chancellors have a huge range of revenue options if they dare to be bold. And would not a truly bold Chancellor in a government that really cared about “ordinary families” prioritise these types of measures, as against existing plans to target inheritance and savings (ISA) tax cuts on relatively wealthy citizens?[2.  See my September piece for UnHerd in which I explore these options at greater length: “The low-paid get a lot of words from politicians. Here’s a plan to give them higher incomes.”].

And finally, there is Brexit. Now, we know that Mr. Hammond is no enthusiastic Brexiteer. I suspect his views about the costs of EU departure are similar to those of former Treasury Permanent Secretary Sir Nick Macpherson, who made an interesting speech on the subject last week. But Brexit still seems likely to happen, and the Chancellor needs to present an appealing and plausible vision of our trading future, to encourage investment and help retain businesses most at risk of moving offshore. Cancelling the £5bn per year of badly targeted future cuts in corporation tax would provide some useful revenue to target more effectively at Brexit-sensitive sectors.

***

The Chancellor may, of course, have decided to be much less daring than all this. He will know that it is easy to produce a Budget which looks “bold” and “exciting” for a day – all you need is the odd, crowd-pleasing, rabbit from the hat, paid for by a low risk package based on those trusty Treasury favourites – “tax avoidance” and “departmental underspends”. And it would be easy, too, to find reasons to justify a “steady as she goes”, content-free, Budget. But on Wednesday, for the country’s sake, Mr Hammond needs to be genuinely bold. If he fails this test, his party may soon be looking for someone else to occupy 11 Downing Street, and – in time – Number 10 too.

On everything from housing, to tax increases, to student loans, to redrafting PFI[1.  “The private finance initiative (PFI) is a way of creating “public-private partnerships” (PPPs) by funding public infrastructure projects with private capital.” More at Wikipedia.] contracts, to nationalising utilities, it is Labour’s socialist vision which is chiming with the electorate, as evidenced by an alarming report on the anti-capitalist state of British public opinion by the think tank Legatum published last week (and analysed by UnHerd’s Editor, Tim Montgomerie, here). For instance, some 76% support renationalising the railways and 83% renationalising water companies.

This week, it is the annual conference of the UK’s Conservative Party and while the media is focusing on what Prime Minister Theresa May might say, it is actually the Chancellor of the Exchequer, Philip Hammond who has the bigger task. Only he can address the economic concerns exposed by Jeremy Corbyn’s rise. What is more, if Britain is to make a success of Brexit, what is done to enhance productivity, spread prosperity and attract investment is going to be just as important as the details of any exit deal with Brussels.

Sadly, nothing in what Mr Hammond has said so far suggests he has any appetite for the radicalism necessary to respond to the Corbyn challenge. We must hope that this is a cunning ruse and he has in fact spent the last few months preparing a secret plan. What we want to hear from him is a robust, optimistic defence of an enterprise, market economy, accompanied by an honest programme for “the correction of proved abuses and the redress of real grievances” as the great Victorian Conservative reformer Sir Robert Peel promised in his Tamworth Manifesto.

What explains Corbyn’s rise is not simply the zeitgiest, or his success at social media (as explained by Helen Lewis), or even the inevitable swing of the political pendulum – but the fact he is actually addressing real experienced consumer grievances like, for instance, rents rising faster than wages[2.  Liam Halligan noted Jeremy Corbyn’s leadership on the housing issue in one of his recent columns for UnHerd: “From Jeremy Corbyn to Bernie Sanders to Elizabeth Warren; what the Left is getting right”, 11 September 2017.] or rubbish and expensive trains.

The broad economic consensus around what one might describe as Osborne-ism – reduce the deficit, cut corporation taxes, and rely on monetary activism to stimulate growth – has completely collapsed. This is because its time has passed. It got us out of the financial crisis, but only at the cost of creating too many losers, especially among the young.

However, young people are in employment, so their sense of animus is derived not from lack of a job, but other insecurities, notably shrinking disposable incomes (compulsory pension contributions following student loan repayments as the latest deduction), and a lack of capital and adequate housing. It is also my firm impression that there is a sense that some companies, like airlines, train companies and BigTech get away with murder because the Government is too complacent to stand up to them.

When set alongside the high rates of income tax, the ongoing corporation tax cuts are looking like a bung to large and unscrupulous companies. Ultra-low interest rates and quantitative easing have deepened company pension deficits (which have to be filled by young workers) and pushed up asset prices, thereby creating a chasm of generational unfairness. Mark Carney, the Governor of the Bank of England, is Jeremy Corbyn’s unwitting recruiting sergeant.

The Bank is at last indicating that it may raise interest rates, perhaps as soon as November. This potentially dangerous inflection point gives Mr Hammond the perfect excuse to revisit Government policies and to work with the Bank to wean us gently off the drug of cheap money. What we need is some fiscal and monetary methadone, so we do not lurch from dependency to a crash in a few short months.

The place to start is with housing. Sajid Javid, the Communities Secretary, has made some progress in the Housing White Paper to address the planning system, but with the Treasury encouraging a boom in over-priced flats with both its tiered stamp duty rates of up to 12% and the stoking of a corporate buy-to-let boom, fiscal policy has piled more distortions on top the distortions of monetary policy. Mr Hammond should cut stamp duty to a flat 1% for both buyers and sellers on all properties and then flatten the forest of property-related VAT rates to a level 20%.

A reform of property taxation to a more rational system would make the market work more efficiently and stimulate housebuilding, including the construction of proper family houses. It should be accompanied by regulatory measures, such as restoring the minimum size rules for flats and introducing compulsory licences for landlords in return for their tax breaks (both Labour policies opposed, incredibly, by the Conservative Party). Help to Buy, Starter Homes and all the other foolish interventions which have pushed up prices and enriched the big housebuilders should also be scrapped immediately – although it is now sadly clear that this is not the intention.

Mr Hammond must next address the running sore of the student loan system. Incidentally, we could ask Steve Lamey, the chief executive of the Student Loan Company, for his advice, but he has strangely disappeared. As he was a previously highly regarded person from HMRC, we must be suspicious of his continued suspension by the Company due to a mysterious investigation. If somebody could please find him and find out what has happened, they would do the nation a service.

Given the gravity of the situation with the student loan system (which is effectively bust), Mr Hammond should announce an urgent review, so we can get to the bottom of what has gone wrong. Such a review would examine raising or staging the repayment threshold (potentially beyond the new level of £25,000), putting the system on a proper legal footing and bring it under the aegis of the Financial Services Authority (it is currently unregulated). In the meantime, he should immediately cut the interest to the pre-2012 rate of 1.5%.

The next leg of economic reform should be to encourage investment, especially in infrastructure. I have numerous friends who commute via road or train and all of them have horror stories about overcrowding, delays and high prices. This has been caused by population and economic growth not being matched by investment since the financial crisis. This, in turn, has held back productivity growth.

According to the Office of Road and Rail, public investment in rail was £4.8bn in 2015-16, substantially down from its peak of £7bn in 2005-6. Of this, nearly £1.3bn was gobbled up by HS2 and CrossRail[3.  Office of Road and Rail, Finance, Annual Statistical Release 2015-16.]. Indeed, the House of Lords Economic Affairs Committee has calculated that on a per mile basis, HS2 costs nine times as much as the TGV, the French equivalent[4.  House of Lords Economic Affairs Committee, the Economic Case for HS2, March 2015.].

The causes of lack of investment in transport would require an essay in their own right. They include Treasury cuts, poor productivity at Network Rail (a nationalised company, all Corbynistas should take note); faulty franchise contracts for train operators (eg Southern Rail). The syphoning off of money to pay for HS2 can only make things worse and the failure to introduce sufficient private investment via, for instance joint ventures.

Again, only a forensic review will get to the bottom of this, but in the meantime Mr Hammond can announce the creation of a project bond market to allow semi-autonomous public/private partnerships in rail, roads and housing to borrow cheaply, financed by tolls, fees and rents, but with a partial guarantee from the Treasury or local authorities.

The sense that something has gone badly wrong with the money and that Britain is being exploited by unscrupulous international investors also needs addressing. It is a little known fact that the big City institutions, like our pension funds, have spent the last decade dumping UK shares in favour of gilts, with the consequence that, according to the Office for National Statistics, they only own a combined 10.1% of the FTSE 100. In 1998, our pension funds owned 21.7% of UK equities, that has been reduced to a paltry 3%. They sold another £6bn in the second quarter of this year. Foreign investors now own more than half of the index[5.  Office for National Statistics, Investment by Insurance Companies Pension Funds and Trusts, April to June 2017.]. No wonder our tech companies are all being sold on the cheap.

I fear that properly addressing this complex long term issue will require another review (sorry about that), but the creation of an independent Sovereign Wealth Fund to act as a long term investor in British companies and infrastructure would be a start. It could be gifted government assets, such as the shares in Royal Bank of Scotland, to get it going.

These ideas are necessarily brief and they not exhaustive. I have not touched, for instance, on enhancing consumer protection legislation for the digital age; or the need to ensure BigTech companies are properly regulated and taxed as French President Emmanuel Macron has, perhaps overzealously, suggested[6.  Financial Times, 29 September 2017, ‘Macron Slams Anglo-Saxon tech giants for distorting competition‘.]; or binding votes on executive pay; or cutting daft taxes like air passenger duty on domestic flights and small business rates.

But the main thing to get across is that Jeremy Corbyn is winning. He is growing stronger and getting closer to Downing Street every day. Labour is ahead in the polls, by 43% to 39% according to the most recent YouGov survey and has fire in its belly.

The great institutional pillars underpinning our market system – the Treasury, the Bank of England, the City and indeed all of us who work in that system – must wake up. It is time for a well-aimed Tory kick in the backside. If it is not administered quickly by Mr Hammond and his Conservative colleagues, then the Labour lynch mob will apply more painful and destructive measures of their own. That would not only be counterproductive, but be infinitely more horrible too.