Speaking on the Andrew Marr Show on Sunday, Mr Hammond described the UK public debt as being “eye-wateringly” large, so those expecting a giveaway in the 2016 Autumn Statement may be disappointed.
Despite Theresa May signalling that the aim of achieving a budget surplus by 2020, first mooted by George Osborne will be reversed, poor public finances and the cost of borrowing means that Mr Hammond is faced with a very difficult balancing act.
It’s also worth noting that, according to Shaun Port, chief investment officer at Nutmeg: “’Trumpflation’, inflation caused by Trump’s protectionism and infrastructure projects… is driving up bond yields across the world, raising the cost of borrowing for the UK government. If Mr Hammond relaxes austerity too far, investors might begin to worry about the UK’s ability to service its debt.”
We’ve rounded up the key issues to look out for on Wednesday.
This morning Theresa May made a speech to the Confederation of British Industry (CBI), the UK’s biggest business lobby group, saying that she wants post-Brexit Britain to be at the “cutting edge”, before pledging £2bn a year for scientific research and development. She also said that she’d like the government to take a “stepping up, not stepping back” approach to intervening in the economy.
With this in mind, it seems likely that we will see an announcement for more investment in the UK itself. In fact, writing in The Sun on Sunday, Philip Hammond says: “For years we have not invested enough in our national infrastructure and that’s held the country back. Our roads, rail and housing need an injection of cash to boost growth.”
For savers there has been a glimmer of hope, with Theresa May vowing to rebalance the effects of low interest rates on savers. Some suggestions around a NS&I bond similar to the ‘Pensioner Bonds’ have been mooted, along with an increase to the Isa allowance. There are also calls to reassess and delay the launch of the Lifetime Isa for fears of potential mis-selling, as a result of poor decision making by young savers.
Analysts at Savings Champion say: "Offering a new savings product, tax breaks or incentives to get us saving is a start in helping beleaguered savers that are struggling with record low interest rates, but we desperately need the higher interest rates that come with revived competition in the savings market. There has to be a fundamental shift away from the cheap funding via the Bank of England, which means that providers do not have to rely on savers’ deposits, though we suspect that we’re unlikely to see this, at least in the short term.
"Although we hope to see a rise in the base rate (much to the dismay of borrowers and homeowners), which for savers can’t come soon enough, this alone may not be enough to push savings rates up to claw back the damage that the Funding for Lending Scheme, Term Funding Scheme and the falls in the base rate, including the recent drop to just 0.25%, has had."
Amid a background of rising inflation and uncertainty over economic growth, issues which many worry about, the calls to cut personal tax are loud. George Bull, senior tax partner at RSM, says: “We could conceivably see a further modest rise in the personal allowance and perhaps even an uplift in the threshold for those middle earners who have been dragged into the higher rate tax threshold.”
At the moment, the personal allowance is set at £11,000 for 2016/17 and will increase to £11,500 in 2017/18. For more details read the Moneywise guide to personal allowances and tax limits.
Low income workers
Universal Credit, designed to support people who are on a low income or out of work, is a major battleground - Iain Duncan Smith left his job in March in protest over cuts to this, and Shadow chancellor John McDonnell has said to Mr Hammond: “If you reverse the cuts to Universal Credit… you have my support.”
The chancellor’s response was as follows: “What I have not heard from you is where you would get the money from to do all these easy options.”
‘Just about managing’ families
You may have seen the acronym ‘JAM’ doing the rounds recently. This stands for ‘just about managing’ families, which are, apparently, seen as a key group of voters - perhaps as a consequence of the Brexit vote and the US election result. Talking on the Andrew Marr show, Mr Hammond said that there were “people who work hard and by and large do not feel that they're sharing in the prosperity that economic growth is bringing to the country”.
However, he also said that forecasts were generally “pointing to a slowing of economic growth next year and a sharp challenge for the public finances”.
Philip Hammond will use this week’s Autumn Statement to announce the government’s intention to ban pensions cold calling, protecting millions of vulnerable people and cutting off the main route through which cowboys trick people out of their life savings.
This will help bring an end to the misery brought about by the 250 million scam calls that happen every year in the UK – eight every second - and builds on the government’s ambitions to make sure this county works for everyone.
Almost 11million pensioners are being targeted annually by cold callers, with savers reporting estimated losses of almost £19 million to pensions scams between April 2015 and March 2016.
Other issues include:
Pension tax relief: the current bill for pension tax relief costs the government around £34.2bn a year. David Heatherton, CEO of Walker Crips Wealth Management, says on this subject: “Pensions have long been a target for Governments to use in tackling budget deficits, but this year we would strongly prefer it if the Chancellor left pensions untouched. However, there seems to be a growing consensus that the complex tax relief regime will be a focus for the new Chancellor.”
Some possible alternative scenarios involve a flat rate being set at 30%, or 100% minus the age of the saver, although these would both be radical changes. Indeed, Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “The previous Chancellor took a good long look at pensions taxation, before eventually leaving the system largely unchanged and launching the Lifetime ISA instead. We don’t think Philip Hammond will make any substantial changes to pensions in the Autumn statement.”
The Lifetime Allowance (LTA): Sara Wilson, from Alliance Trust Savings, says: “The new Chancellor is under pressure from the pensions industry to scrap the lifetime allowance (LTA) for pension savings… however, it is unlikely that Chancellor will do away with the LTA without also reducing tax relief on contributions.”
Lifetime Isa (Lisa): There has been a lot of criticism over the Lisa recently, as well as doubts over its launch date, but Tom McPhail, head of pensions research at Hargreaves Lansdown, says: “I do expect the Lifetime Isa to go live in April next year; with all the talk about intergenerational inequality, it would be a hard one to ditch. The Legislation is well on its way through parliament, it has been through Committee and is heading towards its third reading.”
Triple Lock: Another controversial element of pensions policy in general, the triple lock ensures that the state pension rises each year by price inflation, earnings growth or 2.5% - whichever is higher.
The question for the government is if they want to upset a demographic that generally turns out for votes or not. The general belief is that reform of the triple lock is on the cards at some point, but that the government may put this off until a future date.
The political hot potato of the moment has to go to housing. The rocketing cost of homeownership is no secret - especially in London and the South East - and the government is widely expected to bring the subject up in some manner.
One big call is to ditch stamp duty, which many see as a regressive tax, or at least exempt first-time buyers from it.
Toni Smith, sales operation director at First Complete, says: “Life isn’t getting any easier for most first time buyers and the end of the Help to Buy, rising inflation pressuring wages and a falling pound (which may make UK property hotspots more attractive for overseas investors) aren’t going to improve things any further. The market would benefit from a stimulus at the lower end to give first time buyers a leg up on to the ladder. The simplest and most effective way to do that is by reviewing stamp duty for this population. “
With £5bn already having been pledged for new home construction and allusions from Mr Hammond that the government is treating the shortage of UK homes seriously, policy reform in this area is expected. Look out for announcements relating to the development of brownfield sites, permission for local authorities to borrow more or planning law reform.