After George Osborne’s deeply political approach to Budgets and Autumn Statements, what can we expect from Philip Hammond’s first big performance next month? John Greenwood reports
As the number two in a new government whose political and economic strategies we know very little about, Philip Hammond will be keenly listened to when he delivers his first Autumn Statement next month, with advisers seeking clues on what to expect from the Conservatives in the post-Cameron/Osborne era.
Hammond watchers describe the new chancellor as more pragmatic than his predecessor. A successful businessman before and during his political career, he has had interests in housing, building, healthcare, oil and gas. He has also carried out several assignments for the World Bank in Latin America. His first attempt to become an MP was in 1994, where he was defeated by Labour’s Stephen Timms, but he won Runnymede and Weybridge in 1997.
A Remainer during the EU referendum campaign, Hammond had previously expressed Eurosceptic views on a regular basis. He was one of four Cabinet ministers to vote against gay marriage in 2011.
Hammond sees the Treasury as his natural home. Having been made shadow chief secretary to the Treasury by Michael Howard in 2005, he returned there in 2008 after a stint as shadow work & pensions secretary. He is understood to have been in line for the chief secretary role in 2010 had the Conservatives won outright, but ceded to LibDem Danny Alexander under the Coalition agreement, taking the transport, defence and foreign office briefs instead. Some insiders have suggested he was even in line to succeed George Osborne as chancellor had David Cameron stayed on.
So what tone can we expect at the dispatch box on 23 November from the new incumbent in Number 11 and how will tax and economic policies differ from what we have got used to over the past six years? Hammond’s early signals on debt reduction suggest he does not see the target of a surplus by 2020 as a priority.
A senior tax expert close to the Treasury, who wishes to remain anonymous, says: “Hammond is not a political showboater like his predecessor. He is less of a political tactician and pointscorer than Osborne and more of a steady-as-you-go administrator. He is very capable and will want to show that he is running an efficient ship. Things are working his way so far for the economy, so I do not expect anything too radical just now – no changes to the basic rate of tax, or to inheritance tax.
“As to pensions tax relief, it would be politically challenging. It has been a political football for too long and really needs some stability. But the triple lock does seem over-generous given the nation’s current circumstances, so he could well have a look at that.”
Cicero Group executive chairman Iain Anderson disagrees on the pensions tax relief point, noting that the only thing that had prevented big changes last March appeared to be fear of upsetting Tory MPs ahead of the Brexit vote.
Anderson says: “The new mantra is: ‘A government that works for everyone, not just those at the top.’ There is a ready-made, fully costed, off-the-shelf policy to support that idea. That’s scrapping higher-rate relief and creating a single-tier tax relief for pensions. The Treasury did that work for Osborne – the industry prefers this to scrapping pensions relief altogether – and it fits with the new politics. What’s not to like for Hammond?”
Jelf Employee Benefits head of benefits strategy Steve Herbert says: “On tax relief I expect something to happen, probably within the next 18 months. But I am not convinced he will feel the need to do this right now. Hammond does not strike me as a political grandstander, unlike his predecessor. I think he is more likely to be ‘Steady as we go’ for the moment as there is too much else going on that is really important to risk getting distracted by that.
“Theresa May’s opening speech on taking office, when she said her government would not “entrench the advantages of the privileged few”, gives clues as to her likely attitude towards a spreading-out of incentives to save for retirement.”
Willis Towers Watson senior consultant David Robbins says one can look at the nation’s macro position, and its likely impact on pensions tax relief, in two ways. He says: “On the one hand you could argue that, because Hammond has abandoned Osborne’s target of achieving a surplus by 2020, there is less of a need for revenue-raising measures from pension. On the other hand, it may be that, when the Office for Budget Responsibility puts in its new forecasts for the long-term health of the economy, if there is a negative impact from Brexit then there will be more need.”
An easier subject for Hammond is the consultation on introducing a pension advice allowance that can be withdrawn from pension to pay for advice, and the increasing of the tax-free allowance for employer-paid advice from £150 to £500. The consultation on the pension advice allowance closes at the end of this month.
Herbert says: “These combined allowances will be a huge boost to the financial advice industry. This has to be worth building in to advisers’ propositions, and employers will embrace it too in the longer term. These changes are not controversial and they will not cost the Treasury much, so I’d expect them to be in there.”
Salary sacrifice is a less contentious issue now that pensions, childcare vouchers and bike-to-work schemes have been taken out of the equation, although Robbins sees a potential wrinkle in the current consultation that could have bigger consequences further down the line.
He says: “The Government seems to be saying it is going to treat tax and National Insurance differently depending on whether you got the benefit when you joined the employer or you engineered your choices through your flex system. This seems unfair. How much National Insurance you pay should depend on what benefits you get, and not on how you got there. This could be seen as setting a precedent for pensions in the long run.”
NI on pensions could raise its head in other areas too. Reports of Osborne looking to merge income tax and NI go back at least as far as 2011, and he is understood to have commissioned reports when in opposition on how this could be achieved. Office for Tax Simplification tax director John Whiting is leading an investigation into the project, but experts point out that this has been on the political agenda for decades.
A source close to Corporate Adviser recalls attending a meeting at the Treasury a couple of years ago where chief secretary to the Treasury David Gauke led a debate on the issue, at which an older delegate commented that he had been asked by the Treasury to work out how to merge income tax and NI three decades ago.
A high-profile tax expert says: “I cannot see Philip Hammond going down this path. Yes, it makes sense, but the political collateral is just too great. Ministers like the idea until they realise they will have to put up the basic rate of income tax to 35 per cent, which they are obviously not prepared to do.”
Robbins adds: “It is clearly not easy to implement. You have got the fact that pensioners do not pay NI, so they would be adversely affected. And what do you do about employer NI? Your employer should be interested in the total cost of employment, so if you abolish NI that should feed through to higher salaries, subject to higher income tax. But how sure are we that that would happen in a way that did not leave some groups worse off?”
Speculation will build to feverish levels in the run-up to Hammond’s first Autumn Statement. Most people in the pension and benefits industry will hope for something of a damp squib.
First in Philosophy, Politics and Economics – Oxford University
- 1997 – Elected MP for Runnymede and Weybridge
- 2005 – Appointed to shadow Cabinet to work & pensions brief
- 2007 – Shadow chief secretary to the Treasury
- 2010 – Secretary of state for transport
- 2011 – Secretary of state for defence
- 2014 – Secretary of state for foreign and Commonwealth affairs
- 2016 – Chancellor of the Exchequer