What will the new chancellor's first Budget mean for you?

John Stepek looks at what hints have been dropped about Philip Hammond’s Autumn Statement, what he’s likely to do, and how that could affect you.


Philip Hammond: not a prime minister in waiting, thankfully
(Image credit: JA2)

Chancellor Phillip Hammond is apparently considering dropping the Autumn Statement.

He wants to move away from "gimmicks" and micromanagement, according to the Financial Times.

If that's true, it may be the best idea I've heard from any chancellor during my career as a financial journalist. (Bear in mind, the competition starts with Gordon Brown, the man who turned the Treasury into a form of political Japanese knotweed).

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But this week, we'll just have to put up with it, I'm afraid.

So what's he likely to do when he takes the stage tomorrow? And is there anything you should be watching out for?

An end to the all-singing, all-dancing chancellor? Let's hope so

More than anything else, what I hope to see when Phillip Hammond delivers his Autumn Statement tomorrow is a chancellor who is focused on doing his job, rather than on auditioning for the role of prime minister.

Gordon Brown and George Osborne both used their twice-yearly Budgets (because that's what the Autumn Statement has turned into, another Budget) as a stage from which they could hand out favours like medieval warlords courting the peasantry.

The inevitable result was the ever-growing complexity of Britain's tax code a credit for this, a write-off for that, a nudge here, a tweak there, and pretty soon you've added a Bible-worth of paperwork to an already overburdened administrative system.

Osborne had some good ideas reforming pensions was one of them but that instinct for showbiz really led him astray.

Instead, let's hope Hammond is a bit more like Alistair Darling a man who had his hands full trying to figure out what was best for the country as a whole, rather than pandering to any particular special interest group or the latest whim of his prime minister.

We'll soon find out. So what hints have we been dropped so far about what might be announced tomorrow?

Setting the scene for Brexit

I imagine this will be a scene-setting statement more than anything else. There's still no clear view of exactly what Brexit will entail, and so Hammond is already adopting a "be prepared" tone talking about polishing up the economy to be ready for the opportunities ahead rather than spelling out an overall strategy.

On a big picture basis, Hammond will need to do the usual fudge over the long-term borrowing figures. Britain has a huge national debt, and a big deficit (ie the government spends more than it gets in tax revenues).

Using the government's official forecasts from the Office for Budget Responsibility, that deficit will get worse due to Brexit. That's not something I necessarily agree with, but it's the framework the government has to work within.

So as usual, a British chancellor will have to stand up and make excuses as to why the government's fiscal plans have once again gone awry, and then present the new cunning plan, as if it's actually true this time.

From that point of view, it's not the specific numbers that matter, as the overall direction. Hammond has already said that he isn't planning to meet Osborne's target for cutting the deficit. But it's not clear that he plans to go on a big spending binge either. He's been pretty keen to highlight the government's lack of financial headroom.

Meanwhile, there's also yet another new acronym in town the JAMS people who are "just about managing". They're the new political focus group that Theresa May wants to target. It includes ex-Lib Dem and New Labour voters who have grown disillusioned by the fact that they can't afford to move up the property ladder, or that their middle-management jobs are under threat, or that the "have your cake and eat it" centrist parties they used to vote for have imploded in a morass of class warfare and identity politics.

So I imagine that we'll see some income tax cuts (the thresholds at which you start paying 20% and 40% income tax is likely to go up). And a smart, if cynical, move might also be to look at cutting VAT.

That's difficult because it's expensive to do, so it might not happen overnight. But it's also a comparatively regressive tax, and cutting it could take some of the sting out of future rising inflation. And cutting VAT can also be angled as being something that Brexit allows us to do. So don't be surprised to see some sort of promise made about it.

Making Britain even more attractive to investors

The other big issue that Hammond probably wants to focus on is corporate reforms that make the UK even more attractive to inward investment, regardless of the outcome of Brexit.

Support for science and research always goes down a lot better than subsidies for the City, so expect some sort of announcement on that front perhaps presented in a "compare and contrast" manner with funding that currently comes from the European Union.

Plans to cut corporation tax will probably stay in place, but I wouldn't necessarily expect Hammond to take that any further right now we're already near one of the lowest rates in Europe right now.

Infrastructure spending will likely focus on housebuilding (another vote winner) and upgrading the road network.

As far as personal finances go, pensions are usually the biggest issue. On that front, I'd be amazed if Hammond does much with pensions, or Isas for that matter. I don't think he'll want to fiddle with that particular can of worms when he's got so much else on his plate.

But there is always the risk that tax relief on pensions will change, and over the long run, it seems highly likely that it will. So if you're a higher-rate taxpayer, keep taking advantage of the contributions you might as well get the perk while it's still there.

Anyway that's the forecasts let's see what Hammond actually pulls out of the hat when he's up there. I hope the age of gimmickry is over but I won't hold my breath.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.