The Chancellor of the Exchequer may have one of the most uncomfortable positions in politics, straddling both the Prime Minister and the Bank of England. Uncomfortable, indeed.
Through well-documented twists of fate, Wednesday 23 November will see Philip Hammond’s first Autumn Statement, an outline of the government’s forecasts and plans for the economy. The new Chancellor will formally outline his fiscal strategy as the government maintains the assumption that Article 50 will be triggered in early 2017. While the decision to leave the EU and the news that a new government would be forming as a consequence are well acknowledged, this is the first occasion in five months where the new May government will make clear what their tax and spend plans and their vision for the economy actually are.
It might be a cliché by this point, but the British economic environment is steeped in uncertainty, and it will be managing that uncertainty that will be the underlying theme of the statement.
With the pound having dropped significantly in value since June, one could be forgiven for imagining the government will be taking a series of short-term measures to stimulate the currency. However, Hammond has insisted he is not at risk of going on a “fiscal splurge”. Though increased spending would boost demand and stimulate growth, it comes at the cost of increasing the deficit if it isn’t counterbalanced by tax, tax which is unlikely to increase consumption. Instead, he wishes to pursue “careful, considered and targeted” investments that would result in payoffs further down the line. The Autumn Statement will be one with the future in mind.
Hammond is a sensible man. He’s not fussed about appearing to be a heroic showman like his predecessor George Osborne often aspired to be. As speculation over a premature general election increases, Theresa May must demonstrate to the electorate that she is making good on preventing the erosion of living standards. May wants to spend, Hammond wants to save. This point of friction seems to mean that there will be one group in particular that will be favoured by the Autumn Statement.
People who are just about managing (or ‘jam’ voters) will be the key short-term beneficiaries. They are the group that May seems to want to support the most and that she is invested in convincing to support her. As a result, Hammond may bow to pressure to support the ‘jams’. While the premises might be quite cynical, the benefits for many of those who have been hurt by the recession and austerity may have cause for hope. Such benefits they may expect to receive include a continued freeze in fuel duty, childcare subsidies and the continuation of extending the personal allowance.
A strong prediction, then, is that the statement will be two-pronged. It will be geared toward supporting the ‘jams’ and supporting investment in infrastructure. Planes, trains, massive power projects and housing will play a core part in Hammond’s speech. One of the more radical pitches regarding affording this investment has been the introduction of infrastructure bonds. Such an idea would come about with the hope that the infrastructure projects could be financially sustainable. However, the bonds will be met with resistance if they are perceived to risk crowding out private investment. It’s something that Hammond has before expressed an interest in, so whether or not they come into fruition, there are signals that Hammond’s heart lies in infrastructure, and he is conscious as to how exactly that can be affordable.
While the government was quick to ditch their 2015 manifesto pledge that the deficit would be eliminated in the event of Brexit, Hammond does not seem the type to act as though he has been given a free pass to borrow. In keeping with the manifesto, it is likely that in terms of taxation he will strive to ultimately raise the tax-free personal allowance to £12 500 and raise the 40p income tax threshold to £50 000. This will ease the pressure from a great deal of people, though it is unclear to what extent it might reduce the tax base.
Recent figures show that the UK unemployment is at its lowest since 2005, yet inflation is set to outstrip wage rises and the supply of affordable housing is at its lowest since 1992. The country needs long term investment, but the ‘jams’ will need support in the meantime.
Hammond may hope to be able to model himself in a time of sluggish growth and volatile uncertainty as the figurehead for ‘fiscal responsibility’.