Ding dong the austerity chancellor is dead! So what do wealth managers want from 11 Downing Street’s new resident, Philip Hammond?
Since being announced last week, the new chancellor has already signalled an end to austerity and kyboshed his predecessor George Osborne’s plans for an emergency Brexit Budget.
The news has been welcomed by many in the industry, who are keen to see more stimulative economic measures put in place.
‘The austerity mantra of the past few years has had its own miserable, reductive logic attached to it,’ said James Spence, co-founder and managing partner of Cerno Capital. ‘[Hammond] would be well advised to junk the term, which has always been more about politics than economics.’
Former foreign secretary Hammond said that although austerity was the right call in the wake of the financial crisis, the economy is entering a new phase and tackling the impact of Brexit is his key priority.
Laith Khalaf, senior analyst at Hargreaves Lansdown, echoed this, saying: ‘The new face of government and the Brexit vote gives them a chance to break with austerity, and early indications are they are heading down this road.’
Following the shock referendum result, a recession is probable and Spence said this is Cerno’s base case outlook, although he believes it could be offset by government investment.
‘A spending boost would make sense, particularly if that has an infrastructure focus,’ he said.
‘The attraction of infrastructure is that it adds economic value and jobs, money for it can be readily borrowed, and there are no end of investment vehicles willing to invest during both the build and operate stages.
‘A wise move by the new chancellor would be to launch such a programme, but strip it of its ideological clothing.’
Paul Sedgwick, head of investments at Frank Investments, said that a great starting point would just be for people to stop talking down the economic outlook.
‘I would like to see a bit of calm and collective thought coming out and focus on some of the positives. We are still one of the largest economies and this will create some opportunities,’ he said.
‘Economies are built on confidence. If you make people feel confident, then hopefully people will move on from this Brexit thing.’
Like Spence, Sedgwick also suggests that with Hammond no longer tied to Osborne’s budget surplus promise, money could be freed up to invest in infrastructure.
‘We need to look for him to introduce measures that encourage people to invest, to look to grow the economy,’ he said.
Focus on financial services
High on the agenda for the chancellor will be the thorny issue of trying to maintain the City’s dominant position and support financial services more broadly.
Pointing out that financial services looks set to be one of the industries most directly affected by Brexit, Sedgwick drew attention to the importance of retaining passporting.
James Andrews, head of investment management at Redmayne-Bentley, said passporting should be a priority.
‘He has already talked about [passporting], it really is key to London’s prosperity with the number of US mega investment banks that use London as a hub to passport into Europe,’ he said.
But it is not all about big business. Khalaf wants to see a commitment to the tax-free savings wrappers put in place for investors by Hammond’s predecessor.
‘I would like to see the chancellor confirming the government’s commitment to the Lifetime ISA and to putting measures in place to help people save and to take control of their financial affairs,’ he said.
‘Love him or loathe him, George Osborne was quite successful in doing that.’
Tax and tariffs
Osborne’s parting gift was a pledge to slash the rate of corporation tax from 20% to 15% in a bid to increase the UK’s competitive edge.
Although sterling weakness has arguably done some of the heavy lifting in this area, Andrews hopes that the move to slash corporation tax is carried out.
‘After seeing how the terms [of Brexit] are going to evolve, if it feels like we’re going to end up where dealing involves tariffs, that’s going to be pretty negative with foreign companies and one way of mitigating that is to cut corporation tax,’ he said.
‘Depending on how trade negotiations go, it is a tool that can be utilised either as a threat or to be put in place because the rest of Europe won’t want to see us massively cut corporation tax and become a safe haven for companies.’
He added: ‘The positive that’s coming out is the noise around the more sensible approach to debt reduction and given where the cost of borrowing is, it makes a lot of sense to be utilising those low rates and spending on infrastructure, that creates jobs and drives the economy. Where we might see private companies pause in terms of spending and building, it makes sense for the government
to step in.’