Sajid Javid tried to bury austerity – but this bizarre Treasury rule stopped him going far enough

Establishment economists and Treasury officials bully politicians into keeping annual borrowing below 2 per cent of GDP. But it stops our economy from flourishing

This is an electioneering budget. So money is scattered around – to garner votes for the new Brexit party from a range of constituencies: veterans, teachers, policemen, to name but a few. But in a welcome deviation from Osborne’s decade-long austerity, Sajid Javid offers the promise of a new “fiscal framework” and more investment on infrastructure. The latter must be welcomed. UK business investment as a 17 per cent share of GDP has for too long lagged behind the OECD average of 22 per cent – and explains the absence of a full recovery 12 years after the Great Financial Crisis.

But there is also denial. The “decade of recovery” line after nearly 10 years of austerity was misleading. If this is “recovery” then why has Britain lagged behind her OECD partners, and why in the second quarter of this year did the economy shrink by 0.2 per cent – the worst quarter since 2012? The National Institute of Economic and Social Research (NIESR) believes there is a 25 per cent chance Britain is already in “technical recession”.

And “renewal” is an optimistic approach when a no-deal Brexit is piled on to economic weakness and a “technical recession”. The OECD estimates that the projected hit to living standards would amount in effect to a permanent “Brexit tax” on households. The NIESR estimate no deal is likely to take at least £40-£50bn (2-3 per cent of GDP) out of Britain’s roughly £2.5 trillion annual income (GDP). The IMF thinks it’s likely to be worse, with a shrinkage of about £65bn (3.5 per cent of GDP). And Philip Hammond warned the nation that the costs of mitigating a disorderly no deal could rise to up to £90bn.

All this is forgotten in the cheerfully upbeat scattergun spending review.

But we should have some sympathy with this new chancellor. He’s heavily restricted. He’s been bullied by apparatchiks in No 10, and now economists and Treasury officials are ganging up on him. They’ve got him cornered and wagging fingers are threatening him with the “honour code” – the “fiscal rule”. The nation’s “economic credibility”, threatens the Resolution Foundation, depends entirely on the government’s annual borrowing remaining below 2 per cent of GDP. If he breaks the code, they warn, he’s done for.

Never mind that “this is just a number plucked from the air” as Paul Johnson of the Institute of Fiscal Studies told the BBC Today programme this morning. Never mind the risks the nation is facing: the risk and prolonged costs of no deal; the risk of a global recession. Above all, the terrifying risk of climate and earth systems breakdown and the threat that it poses to the security of an island nation, and to its economy.

No, argue the bullies. Nothing matters more than the chancellor honouring the code: bowing to a fiscal rule “plucked out of the air”.

But as we know from the bitter experience of the Osborne and Hammond years, you can’t eliminate the government’s deficit by cutting the nation’s income. You can only do it by expanding investment, raising wages and generating more income for the Treasury via tax revenues.

The chancellor today made a valiant effort to raise the nation’s income, by allowing the government to spend more, and putting more income into private sector pockets.

By doing so, he is challenging Treasury orthodoxy and improved his government’s chances of winning the upcoming election. But will the cheeriness last?