Conservatives need to show themselves ‘worthy of the privilege’ of governing post-Brexit Britain, chancellor says

The government’s growing concern at the challenge posed by Labour has been highlighted by Philip Hammond as the chancellor admitted that Jeremy Corbyn was asking questions the Conservatives needed to answer.

Hammond joined other cabinet colleagues in warning that Labour’s policies would endanger the economy but said his own party needed to show itself “worthy of the privilege of governing post-Brexit Britain”.

The chancellor said: “Let me be clear about one thing – while Labour’s answers will solve nothing, their questions deserve a response. And we must answer their challenges with our own Conservative solutions based on realism not populism, delivery not rhetoric.”

Hammond made it clear his response to Labour involved more years of austerity to reduce the national debt, and he dropped a strong hint that the possibility of a no-deal Brexit would make this month’s budget a cautious affair.

The chancellor said that as part of the preparations for the UK leaving the EU without a deal he would be maintaining “enough fiscal firepower to support our economy if that happens”.

But Hammond insisted that a deal was still possible on the terms outlined by Theresa May in her Chequers plan, which would result in a boost to growth and a “deal dividend” that would allow him to cut taxes, support public services, reduce the budget deficit and invest in the country’s future.

The chancellor said the Treasury’s austerity programme would come under attack from what he called “populists and demagogues” among Corbyn’s supporters but said his approach would retain the backing of the public.

Hammond said Corbyn and the shadow chancellor, John McDonnell, were offering “a discredited ideology that will never solve real-world problems” and accused Labour of being a backward looking party “intellectually unequipped to tackle the complex challenges of the 21st century and totally unfit to govern the country”.

McDonnell hit back after the speech and accused the Tories of lacking any fresh ideas. “The chancellor’s speech confirmed the bankrupt state of the Tory party, increasingly irrelevant and cut off from the real day-to-day life most people experience,” he said.

“The Tories are bereft of any fresh ideas, forced to resort to a half-hearted filching of policies from others and desperately trying to revive long-outdated slogans. As the Tories sink into a pit of bitter infighting, we mustn’t allow them to take the country down with it.”

Speaking at the Tory conference in Birmingham, Hammond also said the time was approaching when the government would need to tax internet companies such as Amazon and Google, saying: “The global internet giants must contribute fairly to funding our public services.”

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Hammond said the best way to tax international companies was through global agreements, but added: “The time for talking is coming to an end and the stalling has to stop. If we cannot reach agreement, the UK will go it alone with a digital services tax of its own.”

Backing Theresa May’s Chequers plan for a comprehensive exit deal, Hammond said Europe would remain Britain’s largest trading partner and there was a need for friction-free access to the EU to continue.

“That’s why I share the prime minister’s determination to get the Chequers plan agreed,” he said.

Hammond sought to counter the view that Britain would be able to cope easily if it left the EU without a deal and had to trade under World Trade Organization rules.

Whatever the outcome of Brexit, Hammond said, Europe “will remain firmly anchored just a few miles off the coast of Kent”.

He added: “Europe remains by far our biggest market and after 45 years of membership, Britain’s economy has shaped itself around that fact. Complex supply chains cross and re-cross out borders.”

Hammond said businesses needed to have continued friction-free access to the EU market. “That is why I share the prime minister’s determination to get the Chequer’s plan agreed – a plan which delivers on the decision of the British people, avoids a hard border in Ireland, preserves our precious union and safeguards British jobs and British businesses.”