World Economy

UK Plans Major Shift in Economic Policy

Theresa May (R) and Philip HammondTheresa May (R) and Philip Hammond

Chancellor Philip Hammond is planning to embark on a major shift in gear on economic policy as the government embraces a more interventionist approach with increased spending on infrastructure projects.

A senior adviser to Prime Minister Theresa May has told BBC Newsnight that the chancellor is expected to herald a move towards a greater focus on fiscal policy—tax and spending—in his Autumn Statement on November 23.

The move towards a more Keynesian approach towards the economy will mark a departure from former chancellor George Osborne’s reliance on what he called “monetary activism”. This covered interest rates and the purchase of assets by the Bank of England known as quantitative easing.

George Freeman, the chairman of the prime minister’s policy board, told Newsnight that May had used her speech to the Conservative party conference in Birmingham to signal “loud and clear” that she had concerns about relying so heavily on monetary policy. The PM said ultra low interest rates had produced “bad side effects”, notably by hitting savers.

Newsnight understands that the remarks by the prime minister show that she now believes the time is approaching for a shift in emphasis in the defining mechanism for running the economy. She believes that in future it would be wise to lean in favor of tax and spending to allow for greater public investment.

  Focus on Deficit

The chancellor will set out the fresh thinking in his autumn statement on November 23, marking a break with the era of Osborne who championed “monetary activism” and “fiscal responsibility”—low interest rates and spending restraint with a focus on deficit reduction.

Freeman told Newsnight: “Philip Hammond is going to set this out in the autumn statement. But Theresa has been very clear that this model of the emergency QE package, bail out the banks, stabilize the economy has had a very profound effect on the distribution of wealth.

“Those with assets have done very much better than those without. We have to listen to the roar we heard this year and we have to think with money available at 0%—and we want to drive an industrial strategy, getting infrastructure built—we need to make sure we are looking at all the mechanisms for making that money flows properly.”

Government sources have indicated that the Treasury will continue to accept the governor’s advice on quantitative easing. But Freeman signaled that the prime minister believes the UK economy should enter a new era.

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