Issue of the week: what’s in store for the new chancellor?
The challenge for No. 11’s new incumbent is to seize opportunity while avoiding disaster
Ahead of Boris Johnson’s “sweeping cabinet shake-up” this week, much attention was focused on his choice of chancellor. Sajid Javid was widely tipped to be the new PM’s choice, said the FT. Johnson has made it clear that he wants the next occupant of No. 11 to “get back our mojo” and “put ourselves on the path to long-term success”; he has “promised an emergency budget to ensure the economy is going ‘gangbusters’ by 31 October”. That looks a tall order. Fortunately, there are some strong blocks to build upon. Unemployment is at its lowest rate since 1974, inflation is “bang on” target at 2% and average earnings “are growing at their highest rate for 11 years”. Best of all, Britain’s public borrowing level has come down from 10% of national income in 2009-10 to just 1.1% in 2018-19. There are, however, considerable “risks” threatening to jeopardise this rosy picture, which above all assumes “a smooth Brexit”.
That much was made clear last week by the Office for Budget Responsibility’s “no-deal Brexit forecasts”, said Alistair Osborne in The Times. The Government’s fiscal watchdog modelled the International Monetary Fund’s “least-worse” scenario, which assumes no serious disruption at the ports. “And guess what? Bojo’s beloved no-deal Brexit still blows a £30bn-a-year hole in the public finances and triggers a recession.” Uncertainty, says the OBR, would be “heightened”. Confidence would collapse, deterring investment. The pound would fall by an immediate 10%, house prices by 6.2% next year, and higher trade barriers with the EU would have an instant impact on exports. “In short, downers all round.” Indeed, the only thing the OBR thinks will go up is “inflation”. As the Resolution Foundation has noted, “the report rather kills the Tory leadership myth that ‘Brexit and domestic policy’ are separate debates”: the two agendas “are closely entwined”.
Doubtless many will urge the chancellor to “batten down the hatches”, said Matthew Lynn in The Daily Telegraph. In fact, the opposite is required. While Philip Hammond “seemed content to simply move the paper clips from one side of his desk to the other”, Britain’s healthy public finances mean the new person at No. 11 “has a perfect opportunity” to enact “real change”. A big increase in infrastructure spending and cuts to personal and corporation tax would be “good places to start”. As would the appointment of a Bank of England governor “willing to seize the opportunities that leaving the EU present”. It will take imagination and boldness, but there is “huge scope” for a reforming chancellor to change Britain.