The Autumn statement, one of parliament’s big set piece occasions, is when the government outlines its taxation and spending plans and the state of the economy. This year’s statement, due on 23 November, will give us an insight into whether new Chancellor of the Exchequer Philip Hammond will adopt a different approach to the economy than his predecessor George Osborne.
We already know Prime Minister Theresa May’s administration has abandoned Osborne’s target of turning the budget deficit - the gap between government spending and revenues - into a surplus by 2020. Hammond stated in July that while the government needed to cut the deficit, it had to consider the “new circumstances” that the economy is facing.
So we could see the government moderating the pace of planned spending cuts. But it is unlikely we will see a complete about-turn in fiscal policy, or how the government adjusts its spending and taxation plans to influence the direction of the economy.
Both Hammond and May have made it clear they believe the deficit is still too high. Hammond has cautioned against being “cavalier” about levels of debt, while the prime minister has said there will be strict limits to any stimulus. Both have reiterated that the government is still seeking a surplus on the public finances, eventually.
Furthermore, even by the time Hammond gives his statement there will have been insufficient data post the referendum on the UK’s membership of the European Union to enable him to form an accurate judgement of its impact on the economy.
Some commentators have said we could see a big increase in spending on infrastructure projects in areas such as transport and energy to boost the economy. But this seems unlikely. For one thing, Hammond recently said there will be no “fiscal splurge” on infrastructure.
True, the new government has given the green light to HS2, the high-speed railway linking London to various cities in northern England, the extra runway at Heathrow and the Hinkley Point C nuclear power station. However, while the combined costs of these projects could account for over £100 billion of government spending, this will be spread over many years and there are still considerable legal and planning challenges to be overcome before work can begin.
There is another reason why I am sceptical the government will announce a huge new programme of public works even if the economy were to slide into recession; namely the experience of Japan over the last quarter of a century. It introduced a steady stream of stimulus packages over that time, none of which have done much to jog the country out of its long, grinding stagnation.
Turning to other areas of government spending, the government’s approach to cutbacks in welfare spending will probably soften, given it has caused much angst and real hardship among sections of the population.
As for taxation, May’s inaugural speech as Prime Minister made clear she wants the less well off to be the beneficiaries of any cuts. So Hammond could signal his intention to raise the thresholds at which people start paying income tax or cut tax rates for the low paid, and/or VAT which affects the poor disproportionately.
The bottom line is that we should not expect any bombshells. Given the new government’s insistence on reducing the deficit, the chance of Hammond announcing a fiscal stimulus package of £40bn or more, as some have suggested, seems remote.