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It has been somewhat overshadowed by the unfolding drama around Brexit, but in just a fortnight Philip Hammond will present his first Autumn Statement as Chancellor. It will be the first major set-piece announcement on the state of the government’s finances and public spending priorities since the EU referendum result in June.
Since becoming Chancellor, Hammond has developed a position as a moderate voice within the Brexit debate, in particular cautioning against the risks posed to the UK economy by a ‘hard’ Brexit. Hammond has scrapped his predecessor’s ambition of achieving a budget surplus by 2020, though remains committed to fiscal constraint. Beyond this, we know little as to the direction the Chancellor intends to take under his stewardship of the Treasury. This is perhaps unsurprising, given the government’s desire to avoid being seen as reacting in knee-jerk way following the referendum. It also reflects the new administration’s desire to rely less on constant media briefing and to refrain from providing a running commentary on policy developments.
What then can we expect to hear in a couple of weeks’ time?
Firstly, there has been speculation that Hammond may begin to shift the focus of the Autumn Statement away from being a ‘second-’ or ‘mini-budget’ and towards a more technical statement providing a fiscal update and forecast. Initial suggestions that Hammond may scrap the Autumn Statement seem unlikely at least in the short term, not least because of the need to provide regular reassurance to business and the markets as the UK negotiates a Brexit deal. However, the expectation is that the days of the Autumn Statement being chocked full of political announcements and financial tinkering – as was the case under Gordon Brown and George Osborne – may be coming to an end.
Instead, Hammond is likely to use the Autumn Statement to provide reassurance that the Treasury has a plan to smooth the economic consequences of Brexit. In this respect, the Chancellor is expected to move to a more flexible fiscal framework, providing the government with a ‘headroom’ that can be utilised to provide a stimulus in the event that economic growth slows. Infrastructure investment, particularly in rail and road, may be prioritised whilst we can expect measures (to be followed up with a separate White Paper) that seek to turbocharge new housing supply across the UK.
The lead-up to Hammond’s first Autumn Statement has been dominated by a spat between the Bank of England and Downing Street, created by Theresa May’s party conference speech. The PM highlighted her concern at how a programme of quantitative easing and ultra-low interest rates had negatively impacted certain groups in society, including savers and the poor, at the expense of those more rich in assets. This was taken by Mark Carney as an attack on the BoE, with May receiving criticism for appearing to encroach on the Bank’s independence.
Carney has agreed to stay at the Bank until June 2019 with the ‘full confidence’ of Number 10, meaning the heat has largely been taken out of this particular spat. However, May’s comments do highlight a wider concern within her team at the prioritisation of monetary policy as the key economic policy tool – a dominance that has been in evidence since the financial crash and was hugely strengthened during Osborne’s period at the Treasury. Hammond’s first Autumn Statement may see the Chancellor indicate a willingness to move towards a more active approach to fiscal policy. VAT and corporation tax have been flagged by commentators as ways in which Hammond could seek to stimulate the economy. Perhaps more importantly from a political perspective, a move to a more active fiscal programme would provide cover for the Bank of England to begin the process of ending quantitative easing and begin a normalisation of interest rates, making Number 10 happier.
It is unlikely to be revolutionary, but when the Chancellor stands up on the 23rd, “No-Thrills Phil” is likely to begin plotting a new course for UK economic policy.