In anticipation of the Chancellor’s Autumn Statement, Newgate has asked a panel of experts what they hope to hear from Philip Hammond.
Andrew Lilico is Executive Director and Principal of Europe Economics
Philip Hammond should be talking about the key issues; the deficit; infrastructure; housing; trade/tariffs; financial services; the CAP; and green policies more generally.
On the deficit, my recommendation would be to abandon the hubris of setting targets for three or five years. I don’t believe we need them at this stage. Better to just signal a vague ambition to get the deficit down and to keep it at a sensible and sustainable level by historical norms. The deficit is still a bit high, so we need spending to fall a bit more relative to GDP, but the fiscal situation is broadly okay and not much active management is required.
People are once again talking of “kick starting” the economy via infrastructure spending. But UK growth has been fine in recent years. We don’t need to “kick start” anything. There’s every change of wasting money on white elephants at uncertain times like this. If anything, I’d be looking to cut back on things like HS2 and focus instead on more mundane schemes.
There’s no “housing crisis” as such – we’ve ample houses for the number of households we have now – but there’s probably some scope for implementing some of those housebuilding schemes that Cameron talked of but struggled to deliver upon. One interesting area is Osborne’s reorganisation of local government pension schemes into six “British wealth funds”, intended to invest much more in private housing construction. It would be nice to hear more of how that is proceeding.
We cannot expect Hammond to be setting out a detailed new schedule of post-Brexit tariffs but it could be useful for him to give a general sketch of emerging thinking. We surely will be leaving the EU Customs Union, at least in respect of most products. There are many questions that need answering, but I’d recommend signalling a general appetite for lower tariffs than the EU imposes, but not a commitment to unilateral free trade (at least not yet).
The Treasury is leading the Brexit negotiations in respect of financial services but what can Hammond share with us about that? Again, many questions need answering but I’d recommend talking up regulatory equivalence, no new bank levies, and no rush on disposing of bank shares, this time.
With the Common Agricultural Policy talking up 40 per cent of the EU’s budget, Andrea Leadsom is arguably the forth Brexit Minister. The UK will be completely out of the CAP from the moment we leave the EU, and we face full EU tariffs. I hope we have no intention of reciprocating what will be very high tariffs on agriculture imposed by the EU, and that any agriculture tariffs we retain will be quite targeted, and perhaps even only transitional. We do not want that effect negated by tariffs being imposed on food from the EU.
Trump’s victory in the US means global climate change action is pretty much finished for the foreseeable future. I believe the British government should embrace that as a new reality and engage in a major switch of its climate change policies away from incentivising mitigation measures, instead creating a new system of incentives, such as tax reliefs and R&D investment, to encourage adaptation.
Indeed, “adaptation” could be the key theme for this Autumn Statement more generally as we adapt to Brexit, Trump, new economic realities, new technologies, and climate change. Let’s home Hammond has the imagination and the flexibility to get us there.