Philip Hammond: a Dangerous Man

The Chancellor of the Exchequer,  Philip Hammond has a first-class degree in Politics, Philosophy and Economics. Thus it can be assumed that he has at least a passing awareness of the current dogmatic presentation of Economics that is stigmatised in the recent book ECONOCRACY that was welcomed in this blog a couple of days ago. Hammond was a student sufficiently long ago to have experienced some of the 'pluralism' in past Economics teaching whose absence is deplored by young authors of Econocracy, that has effectively been squeezed out of the twenty-first century syllabus; and he has had a successful business career. Philip Hammond should know better than the dogmatic whizz-kids in the Treasury; and if he does not act accordingly he will pay the price in public contempt.

One of the areas of business in which he has become expert is housing. He must therefore be aware of the paradox of house-price inflation in relativity to wage stagnation in the contemporary British economy. In inner London homes now cost more than ten times the annual wages of median earners: approaching double the ratio in which house prices stood to wages before the crash of 2007-8. By contrast, in the lowest-priced areas of the UK house prices range around 1.5 times the annual wage of those locals who are fortunate enough to be in employment. London prices in small part reflect the higher cost of getting materials and labour on-site in London, as compared to the provinces. But the biggest cause of the difference in housebuilding costs in London is the differentially high price of land in the various areas of the capital. However, the varying cost of buying the land and building the house does not constitute the major component of the differential between house prices in London [and in the most fashionable areas of the south-east, and in hot-spots such as Cambridge and Oxford, Bath and Bakewell]: that is down to the immaterial 'advantage' perceived in the location of the property and in the local amenities to which residents have convenient access. Especially in London, there is the additional factor that people who have accumulated large cash reserves in countries with less stable regimes have queued-up over the past couple of decades to buy London property as a safe asset. In many thousands of cases these purchases have driven off financially-less-capable natives and working immigrants; only for the premises to be held unoccupied. Decisions not to let the property in which the alien owners do not live seem bizarre to homeless Londoners, especially as they are now a major cause of the shortage of housing for the people. It has been so profitable for developers to deploy their capital and their managerial resources primarily on highly priced developments that aliens find the most attractive investments, that there is little resource left to house those who keep London's streets clean, hospitals functional and buses driven.

I wrote yesterday on the relationship between Tory government policies and wages. Wages in real terms are falling, and are set to continue falling; and the quality of life for the recipients is also being driven down by the real-terms cuts to the health service, education and other public sector activities. Even if Hammond's tenure at the Treasury is short [some siren voices are calling for his dismissal already], there will be measurable decline in living standards during that time. So history will judge him harshly, as the supine follower of George Osborne [whose career I briefly reviewed yesterday]. History will also be properly critical of those who see the Chancellor as the possessor of a 'safe pair of hands'. Those who will suffer from his tighter squeeze on state spending - even beyond what Osborne 'achieved' - will have no reason to want him to be saved from the consequences of his actions.