The Chancellor can use the tough economic backdrop to his Autumn Statement to make his mark on the direction of government

A new Chancellor’s first fiscal statement is always a big deal, but the relish with which they approach it inevitably depends on the circumstances underpinning their arrival. Those entering Number 11 off the back of election victory – with a fresh mandate in hand – have the opportunity to set a clear tone for the coming years and put into place the vision they’ve been describing for the duration of the election campaign. Those thrust into the job following the failure of their predecessor, or a wider economic or political crisis, face a less enviable task – though there are points to be earned by displaying calm authority and steely resolve.

Arriving against the backdrop of bitter divides within the country and potentially within his own party, an economic outlook that is very uncertain but almost certainly gloomy, the prospect of a significant weakening in the public finances and the need to find resources to provide new support for ‘just managing families’, Philip Hammond could be forgiven for approaching the Autumn Statement on 23 November with rather more trepidation than many of his forerunners.

Yet the scale of challenge facing the Chancellor might actually work in his favour. Our projection is that the OBR will set out an £84 billion deterioration in the public finances over the course of this parliament relative to their March forecast. Far from good news of course, but this magnitude of revision gives the Chancellor legitimate cause to press the reset button – starting again not just on the targets set out by his predecessor but on some of the policy pledges he’s inherited.

One option is to revert back to a focus on the current (rather than overall) budget deficit, freeing up significant funds for extra investment and up to £17 billion of headroom for day-to-day spending too. That would be more than enough to reverse the cuts made to working-age benefits since the 2015 election – which are currently set to make the ‘just managing’ who are the focus on the Prime Minister’s concerns worse off over the course of the parliament – with enough left over for some additional spending on the NHS.

But this would of course come at the cost of an increase in borrowing over the course of the parliament and slower progress against the aim of lowering our debt-to-GDP ratio. The indications are that the Chancellor won’t want to go quite this far – meaning that he will also need to re-prioritise existing tax and benefit measures.

One area that might provide a fruitful source of new resources is to look again at the appropriateness of some of the tax cuts introduced by his predecessor. Cuts costing roughly £32 billion this year have narrowed the UK’s tax base, been distributionally skewed and represent the difference between delivering a current budget balance this year and a forecast deficit of £27 billion.

For example, a series of cuts to income taxes in the period since 2010 are expected to cost the government in the region of £17 billion this year, rising to £21 billion by the end of the parliament. It might be too difficult to actually reverse these cuts, but the Chancellor could at least rule out going further still. The Conservative manifesto pledged to raise the point at which income tax is paid to £12,500 and the point at which the 40p rate kicks in to £50,000. Completing that job would cost in the region of £2 billion, with around £1.7 billion of this going to households in the top half of the income distribution. Given the changed circumstances facing the new Chancellor, reneging on this poorly targeted policy promise feels like an obvious choice.

Likewise he should reconsider whether lowering the UK’s corporation tax to 17 per cent in 2020 (from 20 per cent today and down from 28 per cent in 2010) is really an effective use of what again amounts to around £2 billion. Clearly there is a case for making businesses competitive, but the OECD average corporation tax rate is 25 per cent and it’s not clear why the UK should feel the need to be so much lower than any other economy in the G20.

Some combination of establishing fiscal headroom and putting an end to these unnecessary tax cuts would provide the Chancellor with an opportunity to simultaneously support public services, boost investment spending and provide real help for those who are just managing – for example by increasing the generosity of Universal Credit. It’s an opportunity he should grab.