HM TreasuryJul 25 2019

What to expect from the new chancellor

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What to expect from the new chancellor

The former home secretary and once managing director of Deutsche Bank was appointed as chancellor of the exchequer by the UK’s new prime minister, Boris Johnson, alongside other cabinet members yesterday afternoon (July 24).

Mr Javid, who originally ran against Mr Johnson in a leadership bid, backed Remain in the EU referendum but is widely considered a eurosceptic.

He was appointed as previous chancellor Philip Hammond resigned yesterday, telling Theresa May her successor “must be free to choose a chancellor” who is “fully aligned with his policy position”.

As he takes over a top spot in politics, what can advisers expect?

1 No tax increases

Neither Mr Javid nor Mr Johnson have suggested an increase in taxation to pay for increased public spending. In fact, both have opted for tax breaks. 

In the election race, Mr Javid backed a cutting of the basic rate to help lower-paid workers but told The Telegraph he could also slash the rates for high earners in a no-deal Brexit scenario to inject “dynamism” into the economy.

Early in his leadership campaign, Mr Johnson promised to raise the 40 per cent income tax threshold from £50,000 to £80,000 which would benefit the top 10 per cent of earners to the tune of almost £2,500 a year.

Dave Penney, director at Invest Southwest, said: “There is a consensus that an injection of various stimuli will be needed immediately post-Brexit.  

“With the personal allowance having been raised to such a high level at such great cost, but to the massive benefit of the lower paid, I would be surprised if basic tax rates were fiddled with too.”

Mr Hammond had lowered workers' income tax bills by raising the personal allowance from £11,000 to £12,500, giving workers £1,500 more tax-free income. 

2 A potential pensions shake up

As home secretary, Mr Javid recommended scrapping auto-enrolment if Britain were to leave the EU without a deal.

He said such a move could give businesses a breather in a potentially tough time and could help the economy tick over.

Auto-enrolment, which means employees over the age of 22 are automatically enrolled in their employer’s pension scheme, was introduced in late 2012 and to date 10m employees have been enrolled into a workplace pension.

Alan Chan, director at IFS Pensions & Wealth, said: “This would be disastrous and a foolish move.”

He said such a policy would completely undo “all the good progress achieved by auto-enrolment since October 2012”.

He added: “Let’s remind ourselves why it was introduced in the first place: people weren’t saving enough for retirement and too reliant on the state. 

“Scrapping it would send out the completely wrong message and tell the British public that it wasn’t such a big deal any way.”

3 More spending?

Throughout Mr Javid’s time at the Home Office and while bidding for Tory leader, he spoke highly of the importance of public services and of investing in the UK’s society.

He backed plans to put more police on the streets and suggested a “multi-year, multi-billion pound boost in spending and investments in schools”.

He also rallied for larger social funding and a £100bn national infrastructure fund to invest in housing as a way to manage the housing crisis.

The new Prime Minister seemed to endorse such ideas. In his appointment speech yesterday, Mr Johnson said he would back funding for education, infrastructure, more police and “full-fibre broadband” for everyone.

Increased public spending would also be in line with Mr Hammond’s resignation letter in which he noted a new government would have “genuine choices” between increased public spending, reduced taxes, higher investments and paying off the deficit.

This was after a “decade when the aftermath of the 2008/09 recession meant we had no choices”, according to the ex-chancellor.

4 Brexit

Although Mr Javid has rallied for a Brexit with a deal — and will follow in Mr Hammond’s footsteps to pursue a deal with the EU — it is likely he will back a no-deal in October if necessary.

Yesterday, he said his key goals were to leave the EU by October 31 and to take advantage of the “huge economic opportunities” that lie ahead.

When running for Tory leader, he said he wanted to “get on and deliver Brexit” so the UK could “bridge divides” and “strengthen society and the economy”.

His new boss, Mr Johnson, has also said he will back leaving the EU in October — “do or die”.

Mr Javid will also decide who will succeed Mark Carney as governor of the Bank of England and the Autumn budget in October.

Yesterday, FTAdviser asked advisers which issues they hoped the new prime minister would tackle in his time in the top spot.

The tapered annual allowance, and end to regulatory changes and a simplification of income tax featured high up the agenda.

imogen.tew@ft.com