What can we expect from new Chancellor Nadhim Zahawi?

Chancellor Nadhim Zahawi arrives at the Treasury on Wednesday. Credit: PA

Day one in the job and Nadhim Zahawi is already delivering tax cuts as chancellor. The increase in the National Insurance threshold, which takes effect from Wednesday, is a cut inherited from his predecessor. Rishi Sunak announced it in March. The change means that 30 million people will pay less in tax. But the overall tax burden under Boris Johnson’s government has risen to its highest sustained level since the 1950s.

Nadhim Zahawi will find himself under immediate pressure to serve up more from where that national insurance cut came from.

Joel Hills provides analysis on Nadhim Zahawi's first day as chancellor

This morning the new chancellor was out and about, paying tribute to Rishi Sunak and simultaneously pledging to review all of his policies. On Times Radio, he suggested Sunak’s plan to raise the Corporation Tax rate from 19p to 25p next April may be abandoned. That would a very signification change of direction, reversing a huge tax increase on the profits of businesses - one that was designed to raise £17 billion a year to help service the hundreds of billions of pound of debt the government ran up supporting the economy during the pandemic. Zahawi was also careful to promise to show “fiscal discipline” as chancellor. He pledged a “return to growth” and to “bare down on inflation” while also “helping people who are struggling”.

These are perfectly sensible aims, Rishi Sunak’s were identical. What’s not clear is how compatible these things are with more adventurous tax cuts. Sunak’s priority was taming inflation. His strategy was clear: the Bank of England would raise interest rates to get rid of the upward pressure on prices; meanwhile he would work to limit the need for interest rises by keeping government borrowing and debt as low as possible. As Sunak noted in his resignation letter, this plan put him at odds with Boris Johnson whose approach was, in Sunak’s words, “fundamentally too different”.

The instinct at Number 10 is to borrow more, tax less and offer more financial help to those who are struggling with the cost of living. The support package Rishi Sunak came up with for households is temporary and carefully targeted to ensure it doesn’t inflame inflation.

The money also came with a stark message that there are limits to what the government can do to protect living standards. At the end of the day, high inflation makes us poorer.

ITV News' Joel Hills visited former chancellor Rishi Sunak's constituency of Richmond to see what change people want as the cost of living squeeze continues

Nadhim Zahawi may decide to make the support more generous but the compensation on offer already considerable (£37 billion) and much of it has yet to be rolled out. The Institute for Fiscal Studies calculates that a full-time earner who is on the minimum wage and received Universal Credit will have their real income almost entirely protected, for this year at least.

New Chancellor of the Exchequer Nadhim Zahawi leaving 10 Downing Street on Tuesday. Credit: PA

It’s possible that Zahawi could also decide public sector workers deserve higher pay rise than they are currently in line for. Rishi Sunak was sticking to the department budgets he set last September when inflation was expected to average 4% this year. Inflation is now heading for 11%. The new chancellor could revisit the spending review. Nadhim Zahawi is keeping his options open. Everything is under review, it’s possible that very little will change. We don’t yet know if he’ll chart a different course from Rishi Sunak and we can’t even be sure he’ll be steering the ship for very long. Zahawi may decide to divide resources differently to Rishi Sunak, but it is the same resource he’s dividing. The economy is no bigger than it was yesterday, the prospects for tax receipts are unchanged. Difficult choices and trade offs lie ahead. Taking on more borrowing and debt would make giveaways possible but carry obvious risks at a time that interest rates are rising.

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