Brexit Imperils May’s Compassionate Conservatism

The cost of Britain’s exit from the European Union doesn’t leave much extra for those who are “just about managing”.

British prime minister Theresa May answers questions in the House of Commons in London, England, July 20
British prime minister Theresa May answers questions in the House of Commons in London, England, July 20 (UK Parliament/Jessica Taylor)

British prime minister Theresa May has said helping those on middle incomes who are “just about managing” is her top priority.

The trouble, as became clear from Philip Hammond’s Autumn Statement on Wednesday, is that her government doesn’t have the money — and that’s because of the uncertainty surrounding Brexit.

In his biannual report to Parliament about the nation’s finances, the chancellor said that growth next year will come down from its original forecast of 2.2 percent to 1.4 percent.

Growth is likely to be lower in 2018 as well: down from 2.1 to 1.7 percent.

Not until 2019, when Britain must leave the European Union, is the economy projected to return to its original growth path.

As a result, borrowing will be higher. Whereas an £11 billion surplus was originally projected for the end of this Parliament, there will now be a deficit of £20.7 billion.

The national debt, as a share of gross domestic product, will peak at 90 percent in the 2017-18 fiscal year. Pre-Brexit forecasts had it down to 81 percent by then.

Puny

Hammond could nevertheless announce some measures to help low- to medium-income households who are struggling to make ends meet.

Fuel duty is frozen for the seventh year in a row. The lowest tax threshold will be raised from £11,500 to £12,500. The minimum wage is raised from £7.20 to £7.50 per hour (a smaller increase than expected). And the government will spend £3.7 billion more on housing, including on the construction of affordable homes.

It’s not nothing. But it’s not exactly the break squeezed middle incomes have been waiting for either.

Middle way

May’s challenge is to find a middle way for Conservatives between the big-city liberalism of Hammond’s predecessor, George Osborne, and the Tory paternalism of the past.

She believes the voters her party needs to reach are ordinary working- and middle class; people of modest means, but who work hard and want to give their children the best start in life they can.

Hence one of her first policies was to allow the expansion of grammar schools, which limit entry to high-performing pupils. There was little educational need for it, but it signaled to voters who want their children to get ahead in life that she is on their side.

This more Christian democrat-like vision is a departure from the line of May’s predecessor, David Cameron, and his deputy, Osborne, who — despite being far more flexible on fiscal consolidation than their detractors allowed — emphasized deficit reduction and the need to make Britain more competitive in a global economy.

Brexit makes it more difficult to abandon the Cameron-Osborne plan. Businesses are already anxious about what will happen if Britain leaves the European single market. This is not the time to add to their woes. That is why Hammond kept corporate tax cuts on course: They will fall to 17 percent by 2020.

If the cost of Brexit mounts, expect the burden to fall where it always does: the middle incomes who are the backbone of the British economy.