Following four and a half years as city minister, with another year as PPS to former chancellor (now Lord) Philip Hammond, not walking into HM Treasury in Horseguards every morning will take some adjustment.
But I have no doubt that the dedicated officials who worked so tirelessly for me will continue to do all they can to deliver on the new government’s agenda.
It is clear the measures to support the economy through the global pandemic have left a major debt burden on the balance sheet. Vladimir Putin’s invasion of Ukraine impacted energy prices and necessitated further intervention, which will also have a significant and uncertain financial cost.
The challenge for the Treasury now is how to honour the spending envelope for the 2021 Comprehensive Spending Review amidst inflationary pressures, accommodate the energy support package with some uncertainty over how long it will need to last, and deliver on the tax cutting expectations the Prime Minister set during the leadership campaign.
This complex simultaneous equation was made yet more complicated by the scale of the ambition of the Chancellor’s mini-Budget on 23 September. This offered a significant extension to the tax cutting agenda anticipated from previous policy statements.
The reversal of the national insurance levy as well as the abolition of the planned rise in corporation tax were widely expected. The statement set out other changes to stamp duty, confirmation of planned changes to Enterprise Investment Scheme and Seed Enterprise Investment Scheme rules, and an evolution in capital investment allowances.
The acceleration of the planned cut to basic rate of income tax was not expected nor the abolition of the bankers’ bonus cap or the abolition of the 45p rate – subsequently revoked.
The rationale set out by the Chancellor was to accelerate growth, expand tax revenues as a consequence, and thereby shift the economy to a new paradigm.
In the following days, lack of clarity over the extent of the short-term borrowing requirement to pay for these proposals, combined with uncertainty over how to convincingly demonstrate the therapeutic value of tax cuts in combination with less well-explained supply side reforms inflated borrowing costs and demanded further interventions from the Bank of England. This is ongoing.
After a busy Conference last week, the Chancellor has now confirmed that the government’s medium-term fiscal strategy will be accompanied by a full OBR assessment which will take place on 31 October.
The outstanding matter of how the short-term borrowing costs of the tax cuts can be accounted for and how the 2.5 per cent growth rate can be substantiated (and over what time frame) will be a challenging arithmetical problem for the excellent Treasury officials.
I suspect they may have suggested the contents of the 23 September statement were ambitious, but they will now need to be ingenious as they offer options for the next significant parliamentary outing for the occupant of No 11.
The Chancellor faces tough dilemmas. His choices must now be deliberate, considered and clear. Given the scope of the tax cutting measures, it would be neither politically possible nor morally right to deliver a real-terms benefit cut for the most vulnerable.
The challenge of filling vacancies at a time when unemployment is at a 48-year low needs creativity – but perhaps a more flexible approach to immigration is somewhere he should start.
However, the most critical consideration is how to satisfy the markets, which price the debt they buy based on the level of confidence they have in the coherence and achievability of the narrative and measures set out.
The new government certainly does not lack ambition – I just hope the markets align to how we get to the new horizons.
