Philip Hammond warns Tory leadership hopefuls against ‘reckless solutions’ to economic concerns

Philip Hammond is to warn Tory leadership contenders they cannot hope to rebuild the party by relying on tax cuts and deregulation.

Hopefuls for the Conservative crown have already set out plans to slash taxes in an effort to appeal to grassroots members who will decided Number 10’s next occupant.

Chancellor Mr Hammond will argue that a “regulated market model” is the best way to raise living standards, rather than total liberalisation.

Speaking in London on Thursday he will warn against “reckless” solutions offered by “populists” and defend Government intervention on issues like the national living wage.

Mr Hammond will be speaking at the launch of a report by living standards think tank the Resolution Foundation on the impact of the higher minimum wage.

Leadership contenders are already setting out plans to cut taxes in an effort to appeal to the grassroots Tory members who will decide on the next occupant of Number 10.

Dominic Raab has pledged to cut income tax by a penny a year – 5p over the course of a parliament to just 15p in the pound for the basic rate – which critics have claimed would cost £25 billion.

Foreign Secretary Jeremy Hunt has also adopted a tax-cutting approach, although in his case he suggested slashing corporation tax to Irish levels of 12.5 per cent.

A source said Mr Hammond’s speech would be a “rebuke to those who call for total liberalisation of the market” and a warning against “those who seek to renew the Conservative Party by relying on tax cuts and deregulation only”.

He would be making the point that “letting rip the forces of the free market doesn’t always work for all,” the source said.

Mr Hammond will say: “The truth is, we have seen a gap open up – in Britain and in other developed countries – between the theory of how a market economy and free trade creates and distributes wealth, and the reality experienced by many ordinary people.

“But that doesn’t mean we should abandon our economic model.

“Of course, we can’t ignore people’s concerns either – otherwise the reckless solutions of the populists will flood in to fill the vacuum.

“So for those, like me, who believe passionately that harnessing the power of market economics is the only way to deliver progress … it is imperative that we take decisive action to show that the regulated market model can deliver higher wages and higher living standards.”

He will add: “But above all, it means delivering rising living standards, through sustainable real wage growth, year after year.”

Making the case for further increases in the national living wage, he will say it is “one of the best levers we have” to make an economy that works for everyone.

“In 2016, we set a target for the National Living Wage to reach 60 per cent of median earnings by 2020 – and we will deliver on that, giving a pay rise to millions of workers.

“We now need to decide where to go next.”