In just under a month, Chancellor of the Exchequer Philip Hammond will have delivered his first Autumn Statement. This represents the first opportunity for May’s new administration to chart the course of the British economy through the tricky Brexit straits.
There are two important components of the Autumn Statement. The first is the economic forecasts from the Office for Budget Responsibility (OBR), which present an independent economic diagnosis on the health of the British economy. While businesses and the public tend to focus on eye-catching policy announcements, financial markets will pay close attention to these forecasts for clues about the economic impact of Brexit.
The second component is the Statement itself, which is effectively a complex jigsaw puzzle balancing hundreds of tax and spending measures within a clear narrative. Each proposal, from major pension reforms to small regional projects, must be developed, costed, presented and decided upon by Treasury Ministers in the weeks leading up to the event.
How does this process impact how clients deal with the Treasury?
Firstly, clients will find it extremely difficult to engage with the Treasury until the Autumn Statement is over, even on important policy questions relating to Brexit. Ministerial and SpAd diaries will yield little time for anything not related.
Secondly, policy costings must be submitted to the OBR in advance to enable accurate forecasting, so the majority of the Autumn Statement will be locked down a week in advance of publication. Policy suggestions not already submitted will simply be ignored. The final week of preparations focuses almost solely on selling the package’s narrative – gone are the Gordon Brown days of policies being agreed at 4am the night before.
In terms of things to watch out for over the coming weeks, there are, firstly, the economic forecasts. The Treasury generally likes to prepare financial markets for bad news to prevent ‘on the day’ shocks – so watch out for the pre-briefing of any sober economic language.
Secondly, the policy proposals briefed out in advance simply ensure that the government’s ‘positive’ agenda dominates the airwaves for as long as possible but seldom reflect the full package, as less popular measures will be cleverly disguised. Business-friendly announcements can be expected to reassure those CEOs nervous about the impact of Brexit.
Thirdly, expect strong rhetoric on additional support for infrastructure spending – but there are questions about how much will actually be new, rather than recycled old announcements.
Finally, a fiscal event provides a major opportunity for the Chancellor to curry favour with influential back benchers, so expect small giveaways to be trailed in the weeks leading up the event.
However, obviously this Autumn Statement carries more weight than usual because of the importance of the economy in Brexit negotiations.
Disappointing economic forecasts, or pessimistic warnings about the reliance of the British economy on Single Market access, strengthens the hand of the EU in negotiations as well as those pushing for a ‘softer’ Brexit or transition period.
Equally, independent reassurance that the UK can survive outside of the Single Market will strengthen the hand of those pushing for a hard Brexit.
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