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Cold Christmas coming for May as Brexit and budget crises loom

Theresa May at Tory conference.
The prime minister finds herself increasingly boxed in as rival groups of Tories pile the pressure on. Photograph: Han Yan/Xinhua / Barcroft Images

In the last few weeks at prime minister’s questions a group of female Tory MPs have stood in front of the entrance to the Commons chamber, within the eyeline of Theresa May and opposite the press gallery, loyally nodding at almost every word she has uttered. This position, at what is known as the Bar of the chamber, is much sought after by MPs on set-piece occasions, as it is also in the view of television cameras.

“It used to be a place taken up by Tory men like Iain Duncan Smith and Jeremy Hunt,” says Labour MP Lucy Powell. “So a group of Labour women then tried to occupy it. But now the Tory whips have clearly told their women to get into chamber early and just stand there.

“It is a desperate attempt by the Tories to show they are in charge of the place when the reality is that they are simply losing control of it.”

At PMQs last Wednesday May struggled again in the House of Commons despite the efforts of her most loyal MPs. So confident was Jeremy Corbyn that he felt able to do something he had never done before, at the outset – stare at the prime minister and welcome a fall in unemployment that had taken place under her government. As Corbyn had clearly hoped, Conservative backbenchers duly roared and waved their order papers in delight. Then, with the smiles still on Tory faces, the Labour leader proceeded to wipe them off by firing question after question on domestic matters, pounding the prime minister with accusations about her record on everything from the chaos over universal credit to falling real wages, rising personal debt, homelessness and the effects of the pay cap on public sector workers. Corbyn turned the tables.

Brexit alone has tested May’s resilience and raised questions among MPs in her own party about how long she can go on. Her cabinet is split between hard Brexiters – the likes of Boris Johnson, Liam Fox, Andrea Leadsom and Michael Gove – and the ex-Remainers-turned-soft-Brexiters led by Philip Hammond, Amber Rudd and Damian Gree.

With no Commons majority, she has found herself trapped in the middle, unable to make the financial concessions that Brussels is insisting on before allowing talks on a new trade deal with the EU to begin. The hard Brexit wing of her cabinet and party simply won’t let her offer up more money to effect the divorce.

Many Tories now say they would prefer a “no deal” Brexit to one that offered too much to the EU. At a summit in Brussels on Thursday and Friday, May won some more breathing space when European leaders agreed to extend the deadline for progress until December. “We have bought some more time,” said one pro-Remain former Tory minister. “But the problems – the sticking points – are precisely the same. And the clock is ticking. At some point she will have to lead in one direction or the other.”

Large UK employers, including some in the car industry, and big financial institutions in the City of London, are now warning ministers privately that unless clear progress is made by Christmas, to show that a deal will eventually be done and a transition period agreed in principle, they will have no option but to make contingency plans to shift employment out of the UK.

As if that were not enough for one prime minister, May’s domestic problems are accumulating and threatening to swallow her up too. It is on the home front that Labour believes it can hurt the Tories most, by holding May to account on her promise to improve the lot of the “just about managing”. Political debate over the next few weeks will probably focus less on Brexit and increasingly on Hammond’s 22 November budget and what it can deliver for the “just about managing”. At the very least, May’s government needs to show it has a coherent plan for the home front which makes sense of her stated mission, even if it lacks one on Brexit.

But Hammond faces a hugely difficult task at a time of grave economic uncertainty and rising national debt. As the Observer reports, the chancellor is under intense pressure to help 5.4 million public sector workers, whose pay, according to the Treasury’s own figures, has fallen behind those in the private sector for the first time in more than a decade. The unions are demanding that he use the budget to lift the 1% cap on annual pay increases.

Charities and pressure groups are also demanding that a cap on in-work benefits, announced by George Osborne in 2015 and due to run until 2020, be lifted. The calls intensified last week when official figures showed that inflation had risen to 3%. The independent Resolution Foundation has calculated that a one-earner couple with two children will lose more than £300 a year from the combination of frozen benefits and inflation. Torsten Bell, the RF’s director, said Hammond should use the budget to “ease the squeeze on low- and middle-income families, not make it worse”.

Then there is the growing chaos surrounding the flagship Tory welfare policy – universal credit. Tory MPs concerned about the six-week wait that claimants have to endure before receiving any money under the new system demand that it be cut to four weeks. This would cost the Treasury hundreds of millions of pounds a year.

There are now powerful figures championing the need for more investment in the welfare system. One is former Tory leader Iain Duncan Smith, the pioneer of universal credit, who resigned in March last year after Osborne repeatedly raided the budget for the new benefit. He told the Observer that Hammond needed to “look at whether we are putting the right support into universal credit” and examine giving greater support to claimants, cutting the wait for payment. Many Tory MPs are also calling on Hammond to address the Tories’ lack of support among young voters, perhaps by offering some form of tax break or other financial help.

But it all costs money that Hammond and the Treasury will insist they do not have. The chancellor was handed extra spending power when figures for the first six months of the financial year showed that this year’s annual budget deficit was likely to be at least £10bn lower than forecast. With tax receipts growing at 4% a year since April and government spending restricted to 3%, the chancellor is bringing down the deficit faster than the Office for Budget Responsibility (OBR) expected. But an expected downgrade in forecasts for productivity growth will wipe out about two-thirds of the £26bn of financial headroom the chancellor left for himself between 2017 and 2022.

There are also growing calls from hard Brexiters in his own party for Hammond to stump up more than the £250m agreed so far to prepare for the possibility of a “no deal” Brexit. These Tories see the chancellor as an impediment to the kind of pure Brexit they want and are lobbying for him to be sacked by May whenever she carries out a reshuffle. The mighty challenge of Brexit cannot be divorced from the equally formidable one of the approaching budget. Two huge political car crashes are likely to happen at once in the lead-up to Christmas.

This article titled "Cold Christmas coming for May as Brexit and budget crises loom" was written by Toby Helm, Michael Savage and Phillip Inman, for The Observer on Saturday 21 October 2017 11.11pm


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