The circumstances in which Chancellor Philip Hammond took to the stage in Birmingham this week were unusual, to say the least. Though his detailed plan was not expected until the Autumn Statement, expectations were high for what would be Mr Hammond’s first major speech since taking on the role of Chancellor.
However, he took to the stage aware that he would be walking a tightrope. His party had been elected only 18 months ago with a narrow majority on a manifesto whose economic policies and principles appeared to have been invalidated by subsequent events. The Chancellor needed to marry the promises made to voters at the General Election and the EU referendum, in spite of their seeming incompatibility.
The speech he delivered was thus an odd mishmash, promising a firm intent to stick to the previous administration’s fiscal principles and responsiveness to the changed economic circumstances of the country.
While stressing that “the British people elected us on a promise to restore fiscal discipline”, he confirmed earlier intimations that he was abandoning the target of a surplus by the end of the Parliament.
He also reaffirmed his commitment to investment in infrastructure and housing, tackling the issue of low productivity and further advancing the devolution agenda pursued by the last Government. Indeed, among the most significant announcements in the speech related to the provision of £100m for the Biomedical Catalyst fund and £120m to nurture Technology Transfer Offices to spread innovation from universities to businesses.
While not insignificant, these funds were relatively small change for a man who controls the purse strings of the nation. Further, Mr Hammond’s suggestion of a fiscal stimulus suggested something more dramatic would be needed. During his comments to the Economic Affairs Committee last month, he himself had emphasised that fiscal stimulus needed to be “quick” and argued that large infrastructure investments did not achieve this goal.
His pledge “to control day-to-day public spending” while simultaneously responding “to the consequences of short-term uncertainty” appeared to indicate the main tool the Chancellor planned to us in his upcoming Autumn Statement - tax cuts.
However, which taxes would be cut remains unclear. As the Independent noted, his comments on Corporation Tax appeared to suggest that he would not be accepting his predecessor’s recommendation to reduce the rate further than 17 per cent. This perhaps implies that cuts will instead be made to one or more of the taxes paid by ordinary people, but this was not mentioned by the Chancellor.
Some sort of significant reduction in tax is likely, however, in light of comments later in the week from the Number 10 Policy Board Chair George Freeman that the Government was considering moving away from monetary stimulus towards fiscal stimulus.
Another area of economic policy which remains unclear is the much-touted industrial strategy. Business, Energy and Industrial Strategy Secretary Greg Clark’s speech highlighted a local approach within the strategy, but did not cast much light on the content of a future industrial strategy.
While the Party Conference gave some hints of the direction the Government plans to pursue for the Autumn Statement, many if not most of the many questions being asked by uncertain businesses and ordinary voters remain unanswered. This lack of clarity will undoubtedly feed into the anticipation and pressure on the Chancellor ahead of the Autumn Statement on 23 November.
Madhav Bakshi is a Political Analyst within DeHavilland’s Editorial Team and leads on Energy policy. He is a graduate of King’s College London, where he studied International Politics.