LONDON — Chancellor Philip Hammond will give the government’s first major update on economic policy since Britain voted for Brexit when he delivers the Autumn Statement, later on Wednesday.
A set piece in the parliamentary calendar, the Autumn Statement is generally used by governments to provide an incremental update on economic and fiscal policy, but given that the current government only came to power in July, 2016’s statement takes on increased importance.
That is especially true because of the political and economic upheaval the Brexit vote is causing.
Expectations are that the statement — also Hammond’s first as chancellor — will mark a big shift away from the economic policies of the previous government under Prime Minister David Cameron and Chancellor George Osborne. The pair aggressively pursued cost cutting in order to eliminate the government’s budget deficit and return the UK to a surplus.
Osborne had planned to balance the government’s budget by 2020, spending only as much as it collected in taxes. However, he abandoned the plan shortly after the Brexit vote.
Hammond is reportedly planning to abandon rigid fiscal targets in favour of a more flexible framework that will the Chancellor to deploy a bigger fiscal stimulus next year if needed.
This more flexible approach is in stark departure to the last Chancellor, George Osborne, whose budgets were defined by their clear targets to reduce the deficit and balance government spending.
Hammond signalled from the moment he got the job in July that he would take a softer stance than his predecessor to budgeting, telling Sky News: “We will take whatever measures are necessary to restore confidence, stabilise the economy as we move forward with the negotiating process.”
Earlier in November, Hammond reportedly briefed the cabinet on the contents of the Autumn Statement, telling them he wants to ensure the government has enough “headroom” to deal with unexpected economic shocks from Brexit.
Hammond won’t just deal with his overall strategy, but can also be expected to address smaller issues, like fuel and alcohol taxes. As with most major government announcements, some expected policy announcements have already been leaked to the press.
Here are some of the key things to look out for when Hammond speaks at 12.30 p.m. GMT (7.30 a.m. ET) after Prime Minister’s Questions:
- Increased borrowing: HSBC’s Liz Martins, as well as many other UK-focused economists expect an expansion of government borrowing to be announced. “We expect the Chancellor to announce an additional GBP8bn of borrowing this year and GBP33bn of borrowing for 2017/18 in the Autumn Statement on Wednesday 23 November, relative to the ambitious forecasts published in March. For this year, we expect an additional GBP2.5bn of gilt issuance,” Martins wrote on Monday.
- A focus on the “Jams” in British society: The newly coined term, meaning people who are “just about managing” are expected to be the focus of the Autumn Statement, according to a report from the Financial Times last week. The FT says there was tension between Hammond and Prime Minister Theresa May, who insisted that spending plans should focus more on working-class voters who feel they have been left behind by globalisation, and who voted in large numbers to leave the European Union in June.
- Infrastructure spending to the fore: Hammond has already announced a £1.3 billion infrastructure programme, and could announce more. Major roads and railways are expected to get a funding boost,
- Any stimulus is unlikely to be as big as previously expected: “The UK economy has continued to outperform expectations, with very strong retail sales numbers last week adding to a raft of data which suggest there is no urgent need for a major stimulus at this point. Chancellor Philip Hammond will, after all, get a second bite at the cherry in March. Indeed, Mr Hammond has struck a cautious tone in his interviews over the past weekend, repeatedly emphasising the limits to the UK’s capacity for going on a spending spree,” HSBC’s Martins wrote.
- Smaller measures: It is widely reported that the government is considering a cut to air passenger duty, the tax paid by travellers. The current rate for a short-haul flight in economy class is £13, rising to £73 for flights over 2,000 miles. Fuel duty for road vehicles is also expected to be frozen for another year.
- Raising income tax thresholds: Hammond will also reportedly honour the pledge made in last year’s Conservative party manifesto to increase the threshold for people paying income tax to £12,500, and increase the lower bound for the top 40p rate of tax to £50,000.
Hammond could, of course, surprise us all with a series of unexpected measures later today. For instance, at last year’s Budget, Osborne surprised pretty much everybody when he announced a so-called “sugar tax” on soft drinks like Coke and Sprite.
However, given the cautious tone that Hammond has struck, and his reputation for being incredibly measured — he has been nicknamed “Spreadsheet Phil” by colleagues in the past — it seems pretty unlikely.
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