Philip Hammond really is another Norman Lamont: both men hurt the Tories by raising tax

Unwittingly, Philip Hammond predicted the unpopularity of his own Budget. Speaking at the Despatch Box on Wednesday, Mr Hammond said the Treasury had informed him that another chancellor who had announced the end of spring budgets was Norman Lamont in 1993. He then joked: “What they failed to remind me was that 10 weeks later he was sacked, so wish me luck today!”

But what the Treasury apparently also didn’t tell the Chancellor was one of the reasons why his predecessor was eventually dismissed: Lord Lamont raised National Insurance as part of a package of tax increases. In Lord Lamont’s own view, the March 1993 Budget helped lose the Tories the 1997 election.

The situation 24 years ago was analogous to today. Britain had broken with Europe, albeit involuntarily, by withdrawing from the Exchange Rate Mechanism. Public finances were in trouble; the Government wanted fiscal stability. So when Lord Lamont unveiled the Budget, he announced that levies would rise above inflation on cigarettes, petrol and beer. Value Added Tax was introduced for the first time to fuel bills. And Lord Lamont announced that he was raising National Insurance contributions for both employees and the self-employed – by 1 per cent in classes 1 and 4 from the following year. He predicted that this would raise about £2.2 billion, almost the same sum that Mr Hammond hopes to raise from his measures today.

John Smith, the Labour leader, called it “a shameful budget from a cynical government that has broken its election promises”. That was ironic given Labour’s own record on tax and spend. But there’s no denying that the Tories had, in one Budget, appeared to rethink their hugely popular philosophy on tax.

Since the Second World War, the Conservatives had tried to shift the state’s revenues away from direct taxes on labour and towards indirect taxes on spending. The goal was to encourage hard work by making it pay better. Even Edward Heath, the ultimate Tory wet, wanted to reduce the burden on producers – and when Margaret Thatcher entered Downing Street in 1979 she approached the task with a religious fervour. Reducing income tax was critical to her landslide election wins. What the Tories demonstrated in the Eighties was that cutting tax could actually raise income by encouraging spending and investment. Take the 1988 Budget. Nigel Lawson cut the top rate from 60p to 40p and the basic rate from 27p to 25p. The result? Before Lord Lawson’s Budget, the best paid 1 per cent contributed only 14 per cent of all income tax. Once the top rate fell, it rose to 21 per cent. Tax less, get more.

When the Tories ran for re-election in 1992, now led by Sir John Major, they made tax a centre-piece of their campaign. Labour, they warned, would drop a tax bomb on Britain, undoing all the good work of the Eighties. The Tory manifesto pledged to “continue to reduce taxes as fast as we prudently can”. That language, sensibly, contained far more room for manoeuvre than the absolute commitment David Cameron made in 2015 not to raise direct taxation.

The 1992 was an election about trust and finances – and the public went with the Conservatives. One might argue that the dire straits that followed the election necessitated a U-turn, but that’s not how Labour spun it. It was easier to suggest that the Tories had flip-flopped. Labour, which was run by far saner people back then, entered the 1997 election seeking to outflank the Tories on taxes, accusing them of having raised them 22 times. Lord Lamont later described the 1993 Budget as his best. But he conceded that it was politically toxic, that it “helped to lose the 1997 election for the Conservatives”.

The writer Kingsley Amis once joked that one should never crack a joke about oneself that someone else can later twist against you. That’s exactly what Mr Hammond did last Wednesday. He made the comparison with Lord Lamont. He invited the public to compare his approach to tax with a beleaguered chancellor. And that National Insurance increase – contrived and poorly sold – has become the punchline to his Budget.