Chancellor should heed Institute for Fiscal Studies warning and ditch woolly deficit target

The public services are already under strain. Much more austerity and they might start to break

Chancellor Philip Hammond is preparing for an epochal budget (Getty)

“Caught between a rock and a hard place," is how the Institute for Fiscal Studies described Chancellor Philip Hammond's situation ahead of an epochal budget next month that could make or break the country, not to mention his political career.

Mr Hammond is facing rising demands for increased public spending after years of austerity. But how to pay for them?

Thanks in no small part to the misrule of the extremist Brexiteer jihadis he breaks bread around the cabinet table with, an economy already hamstrung by pitiful productivity, is weak, limping along as the tortoise of the G7. It isn't going to help him out with growth.

The Government he is part of is, if anything, in an even more parlous position, to the extent that it makes it difficult, if not impossible, for him to raise taxes to help fill the fiscal hole he gazes down into.

That leaves the option of borrowing more.

To a Treasury that has staked its reputation on eliminating Britain’s structural budget deficit, that is not a palatable option but Mr Hammond should be realistic.

His predecessor, George Osborne, said he’d get rid of the UK's current account deficit in the space of a single Parliament. He didn’t manage it. So he shifted the goalposts, a game Mr Hammond has also played.

We’re now talking eliminating the hole sometime in the mid-2020s, while the painful austerity that Britain has undergone, that has left the public sector in an increasingly desperate state, continues. It is no exaggeration to say that some services are at breaking point. Others are close to it.

And yet, the report finds that the proportion of national income spent is no lower than it was after 11 years of a Labour Government.

While some areas have endured brutal cuts to get to that point after the mess created by the financial crisis of 2007/2008 - the example given of their impact on the prison services is enough to make anyone shudder - others have been coddled.

The triple lock that sees pensions rising by inflation, average earnings, or 2.5 per cent, whichever is more, has them eating up an ever greater share of the nation’s resources. Wealthy retirees also get bus passes, free TVs and winter fuel payments they don't need. Millionaires got a tax cut.

Meanwhile, benefits for the young have been slashed, some public sector workers have resorted to foodbanks, disabled people have faced misery. Some have died.

We were never all in this together. But Mr Hammond lacks the political room to address that unfairness, by, say, getting rid of that lock in favour of a simple index link, if even he wants to.

When even the IFS questions whether a woolly deficit target is sensible given the “fragile” state the public services are in, and some economists argue that Britain sacrificed a hefty chunk of growth through the fiscal retrenching that has been done, it is time to think again and adopt a new approach.

The austerity policy Mr Hammond's Government has been wedded to has reached a tipping point. It has run out of road and rope, but there might still be just enough to hang an embattled Chancellor if he refuses to recognise that.

If he can, if he stops thinking in terms of rocks and hard places and recognises the need for some new thinking, he'll lay down an interesting challenge to the Bexiteer reptiles who have been snapping at him.

The target? It was always rather woolly. The goalposts can move again.