What might we expect from the new Chancellor?
With a degree in economics and a background in banking, new Chancellor Sajid Javid has just got his feet under the table at Number 10 Downing Street and is already making major announcements.
Mr Javid ramped up preparations for a no-deal Brexit this week by announcing a £1bn spending package to get the UK “fully ready to leave” the EU on 31 October, with or without a deal. Taking over from Philip Hammond, the new Chancellor, who also ran for Conservative leader, has reportedly spent his first days in the Treasury running through options with officials.
So, who is the new Chancellor of the Exchequer?
As a bit of background, Mr Javid became a Vice President at Chase Manhattan Bank aged 25. He later moved to Deutsche Bank in London to help build its business in emerging market countries, before moving to a career in politics in 2009.
After his election to Parliament, Mr Javid was promoted to the role of Economic Secretary to the Treasury, and later became Financial Secretary to the Treasury. He was first appointed to the Cabinet in 2014 as Secretary of State for Culture, Media and Sport by Prime Minister David Cameron. He went on to serve under Cameron and Theresa May as Business Secretary, Housing Secretary and Home Secretary, before his appointment as Chancellor of the Exchequer by Boris Johnson.
And what can we expect from the coming months?
During the leadership contest, Mr Javid said a priority would be to cut the basic rate of income tax, but he told the Daily Telegraph he would consider scrapping the top rate of income tax altogether, if he thought it would inject more “dynamism” into the economy. He argues that income tax cuts can pay for themselves, highlighting increased tax revenues in the wake of George Osborne’s decision to scrap the 50 pence rate of income tax.
Perhaps attracting most attention though, was the Prime Minister’s pledge to raise the threshold for higher-rate taxpayers to £80,000 – up from the current £50,000. However, after criticism about favouring wealthier taxpayers, Mr Johnson downgraded the pledge to an “ambition” and added that this would be part of a “package” of measures designed to reduce the tax burden for both low and middle earners.
There are also talks of increasing the National Insurance Contribution (NIC) threshold to help lower earners. If raised from the current level of £8,632 to £12,500 (the income tax threshold), as was suggested by Dominic Raab, the measure would cost £11 billion per year according to the Institute for Fiscal Studies (IFS). Currently each time you raise the NICs threshold by £1,000 it costs £3 billion.
While corporation tax is already set to drop to 17% in April 2020, Jeremy Hunt had promised to cut this to 12.5% in a move which would see the UK become more competitive with the rest of Europe. Lower rates could encourage inward investment to the UK, which would help boost a post-Brexit economy, but we wait to see if the new Prime Minister and Chancellor go down this route.
We’ll be keeping a close eye on conversations around VAT, particularly as we get closer to 31 October, and the government has long promised a review of business rates so a future business-friendly Budget could finally bring a review.
These are all areas, along with tax reliefs, employment tax and spending pledges, which we’ll be monitoring closely over the coming weeks and months.
It’s worth remembering that, while statements, declarations and announcements can be analysed at this stage, what may materialise could be very different. A number of factors could completely change stated plans – the new Chancellor could be faced with preparing an economic programme for a snap election, for example. It’s very early days at the moment and a case of ‘watch this space’ – we’ll keep you informed and updated as we move further into this new ‘Bo-Jav’ era!