What now for our new Chancellor?
Thursday, July 28, 2016
What a few weeks it has been for British politics. With all of the upheaval, you’d be excused for missing the fact that we have a new Chancellor, let alone knowing much about him.
After six long years of austerity, George Osborne was ‘relieved of his duties’, making way for Philip Hammond. We thought it would be a useful starting point to introduce you to your new Chancellor of the Exchequer and look at what may be some of his priorities.
A quick recap of Philip Hammond’s career to date shows a Westminster stalwart who has held a number of respected cabinet roles as Transport Secretary, Defence Secretary and Foreign Secretary. Never touted as a potential Prime Ministerial candidate, this is a character most effective out of the spotlight. The MP who tabled the European Union Referendum Bill in the House of Commons, he’s now one of a key few responsible for making Brexit happen. Although, if it does go terribly wrong, he is apparently one of the wealthiest individuals in the Cabinet, which should soften the blow!
The bearer of good news this week, Mr Hammond was able to announce that Britain’s economy grew in the last quarter. While it somewhat stalled in the immediate lead up to the referendum, it rose by 0.6% in April-June, according to ONS figures, thanks to a surge in industrial output. Some economists fear a Brexit recession is still looming, so high on the Chancellor’s immediate agenda will be allaying those fears and demonstrating to the public, markets and business community that Britain’s economic fundamentals are in good health.
Balancing the books and bringing in more in tax than it spends by 2020 was the vision of George Osborne, which may well have followed him out of the Downing Street door. What can we expect of Philip Hammond’s vision? We may have to wait for the Autumn Statement to really understand it, but during a trade trip to China this month, Mr Hammond said this would be the time to “reset fiscal policy if we deem it necessary.” In our pre-Brexit article, we wrote that there could be changes to tax systems, VAT, and excise duties, but until our EU exit strategy is fully known, it may be too early to hear updates on these this Autumn.
He has also stated that in light of Brexit, he would oversee the Government proceeding to "borrow and invest wisely." This is in keeping with how our new Chancellor is largely perceived – as a ‘safe pair of hands’ that will help steady the ship, rather than make dramatic waves. We know he has relevant experience of the department, having been the Shadow Chief Secretary to George Osborne’s Shadow Chancellor in the lead-up to the general election of 2010.
He is a realist, Philip Hammond, talking of “a different set of parameters” needed to navigate through the UK’s exit from the European Union. Whether that is reflected in more Government borrowing, remains to be seen – but at least historically low rates of borrowing will be an advantage if so! Some figures have put the sum at £50 billion a year by the end of this Parliament; and if it isn't raised by borrowing the money, it will have to come in the form of more cuts or higher taxes, so watch this space.
Corporation tax is an area we could feasibly see Philip Hammond stamp his mark on. Osborne pledged to get it down to 15%, but where does his departure leave that ambitious goal? It is clearly still a lot more competitive than most European counterparts, Ireland aside. A savvy act to give the UK one of the lowest rates of any major nation, the previous Chancellor’s brainchild could potentially pull in new investment and help counter uncertainty around Brexit, which would certainly reflect well on the current Chancellor, if he can deliver it.
There is also speculation around whether the Government will commit to large infrastructure projects, or make a u-turn. Akin to a large neon flashing light signalling ‘open for business’ to international businesses, investment in big projects would bolster large housing developers (the first to see share prices drop post-referendum), large contractors, and the construction industry at large. Whether it’s new housing supply, the third Heathrow runway, Northern Powerhouse, High Speed 2, Crossrail, or other major projects, the Chancellor will have a decision to make in the near future as to which to scrap, delay or progress, which all come with financial and employment consequences.
While he may be a safe appointment to the role, Mr Hammond’s job is far from easy. He will have his work cut out to help find a new place for Britain in the world now that we are negotiating our way out of the European Union, keeping consumer and business confidence high along the way. We will watch with interest and keep members up to date with any tax changes that are announced, so that you can help clients accordingly.