The economy hasn’t been a big feature of the Tory leadership race so far – Chancellor Philip Hammond is determined to change that and has written to all seven remaining candidates, calling on them to commit to continuing the fiscal responsibility of the previous years:
“I therefore ask you, as a candidate for the leadership of the Conservative Party, to pledge that if you are the next Prime Minister your government will, at a minimum, have a clear commitment to keeping our national debt falling every year, and to maintain the current limit of the deficit at 2% of GDP at least through 2021-22.”
Fiscal restraint is something that can easily go out of the window in a leadership contest as candidates attempt to outbid each other with promises to splash the cash or embark on costly vanity projects. It might not be as glamorous as flashy new spending pledges but Hammond has a point about the Tories maintaining a clear dividing line between themselves and Corbyn and McDonnell on the issue…
Another person who could also do with paying a bit more attention to fiscal responsibility is outgoing Prime Minister Theresa May, who decided to slap the country with a trillion pound bill in order to make her own vanity pledge on climate change yesterday without even doing a formal cost analysis first. If anything, binding the hands of her successor with a staggeringly expensive and uncosted policy is more irresponsible than her potential successors making pledges that they probably won’t keep anyway…
Read the full text of Hammond’s letter below:
The Conservative Party has a hard-won reputation for fiscal and economic competence that has been the bedrock of our electoral success over generations. As we enter the campaign to select our next leader, it is vital that we do not throw that away.
When we took office in 2010, we inherited the largest deficit in peacetime history, at 9.9% of GDP. Thanks to sound economic policy and the hard work of the British people, our deficit is down to a more manageable level of 1.1%. However, the years of high deficits have taken a toll on our national debt, which rose from around 35% of GDP before the financial crisis to a peak of over 85% in 2016-17, its highest level in fifty years. Thankfully, our debt is now falling sustainably for the first time in a generation. As we look forward, it is vital that we do not undo these achievements by making unfunded commitments that would mean debt rising again; leave the economy vulnerable to shocks; burden future generations and waste billions on additional interest payments.
If we do not commit to getting our debt down after a nine-year run of uninterrupted economic growth, how can we demonstrate a dividing line between the fiscal responsibility of our party and the reckless promises of John McDonnell and Jeremy Corbyn?
I therefore ask you, as a candidate for the leadership of the Conservative Party, to pledge that if you are the next Prime Minister your government will, at a minimum, have a clear commitment to keeping our national debt falling every year, and to maintain the current limit of the deficit at 2% of GDP at least through 2021-22.
This pledge does not mean that there is no extra money to spend. As I said at the Spring Statement, if we can avoid major economic shocks and if we leave the EU in a smooth and orderly way, an incoming Prime Minister will have genuine choices about how to use the available borrowing capacity implied by these fiscal commitments: increased spending on public services, capital investment in Britain’s future prosperity, cutting taxes or more rapidly reducing the national debt. On the current OBR forecast, these commitments would mean, after allowing for the expected reclassification by the ONS of student debt, around £15 billion of headroom available in 2020-21; £19 billion in 2021-22; £21 billion in 2022-23; and £25 billion in 2023-24, though a prudent administration would not use all the available borrowing capacity given the potential for forecast revisions.
I have written in similar terms to all candidates. I am releasing this letter to the media and will similarly release responses I receive from candidates.
I look forward to your response.