Russell Lynch: Brexit and Trump have created a £100bn headache for Hammond

Pity Philip Hammond. Next week’s Autumn Statement was always going to be a tough gig for the new Chancellor.

Slower growth and a hefty borrowing bill loom, not to mention his Cabinet enemies who think he’s a Brexit “wet”, and brief against him in the papers.

The Chancellor’s one consolation — up until lately anyway — was that he might have found a few extra quid down the back of the Treasury’s “magic money” sofa. The Government’s cost of borrowing plunged over the summer, thanks to a gilt-buying spree fuelled by the Bank of England starting up its printing presses again. At one stage, 10-year gilt yields were driven down to a barmy 0.52% in mid-August.

Those low yields are handy for the public finances. Assumptions of low rates in the future take billions off the UK’s interest bill for years ahead in figures from the the Office for Budget Responsibility (OBR). Hammond’s problem is that yields have been climbing steadily since then; and the bond sell-off seen since Donald Trump’s election win has applied the coup de grâce. Nigel Farage’s charisma has talked us out of the European Union, but Trump’s bond bombshell has wrecked Hammond’s sofa.

There’s small consolation for the Chancellor in the Bank’s decision to ramp up quantitative easing again, because the Bank should return to the Treasury more “coupon” or interest payments on the extra £60 billion in gilts it holds.

But by and large, Hammond is caught firmly in the pincer between higher inflation on one flank and slower growth on the other. Take inflation. There’s about £300 billion outstanding in “linkers” — debt with interest payments based on the Retail Prices Index (currently at 2%) — which is going to get more expensive. Adding an extra 1% to the inflation forecast, reasonable considering the sharp spike in the Bank’s own outlook a couple of weeks ago, could add more than £4 billion to the Treasury’s debt servicing costs next year, according to the OBR’s rule of thumb.

The flip side of higher inflation is lower growth and its impact on the public finances, if the OBR’s Robert Chote really decides to get his red pen out. The data so far since Brexit has been better than the experts dared hope, but even modest cuts in growth have a big cumulative effect as the level of GDP drops over time, and hits the Treasury’s tax take. All told, the Chancellor could be faced with an extra £100 billion in borrowing over the next five years. Against that backdrop, largesse looks unlikely. Hammond has dropped hints on a modest package of infrastructure spending, but when a 1% cut in corporation tax costs £2 billion a year, and a 2% cut in VAT costs £12 billion, the Chancellor won’t be reaching for these levers until he absolutely has to.

If he has any common sense, his “fiscal reset” will be a far more comfortable corset than George Osborne’s surplus target, like an open-ended commitment to cut the deficit every year unless the economy slows below 1%. Maybe then he can make the best possible fist of a tricky debut.

It’ll take more than a friday shopping spree to revive Japan

Long hours in Japan are such a problem that they even have a word — karoshi — for death or suicide triggered by overwork.

So why not, as the Japanese government is reportedly considering, tell firms to push workers out of the door early once a month, and kill two birds with one stone?