Log inWhat Boris Johnson’s cabinet reshuffle means for investors from Jilly Mann
Last week heralded the end of the shortest reign as Chancellor of the Exchequer in the last 50 years.
As Boris Johnson completed his first Cabinet reshuffle as Prime Minister with a comprehensive majority, he took the opportunity to ensure that the key positions were filled with his closest allies and individuals who (at this stage) completely back his leadership style and policies. The departure of Sajid Javid was perhaps unexpected so soon, but it gives a clear indication of how this Prime Minister’s term will run. So far, there are echoes of President Donald Trump’s early moves to shore up his team with believers and remove any doubters.
Whether or not this results in a Cabinet who submit to Mr Johnson’s every demand rather than challenge them remains to be seen, but the signs are certainly there that policy across the board shall be more cohesive and progressive towards fiscal stimulus.
Gone are the constraints of Mr Javid’s budget and in comes Rishi Sunak, a highly rated Treasury adviser with an investment banking background. Whereas Mr Javid was more likely to retain the status quo and ward against mass changes, Mr Sunak is much more progressive and more likely to bring in policy to stimulate growth today than worry about how it can all be afforded in the years ahead.
With the Budget due in March 2020, it is worth bearing in mind that the age old threat to higher rate tax relief on pension contributions now becomes much more real again, as Mr Sunak may be less averse to removing this tax relief than his predecessor. If that is the case then higher rate taxpayers who can afford to contribute into their pensions should consider doing so whilst the tax relief remains available. Entrepreneurs relief is another tax relief which may be drastically cut, if not removed, under the new Chancellor. Both of these policies would save the Exchequer tax and appeal to the mass markets whose votes Boris Johnson won in December.
From an investment market perspective, Mr Sunak’s arrival gives fresh impetus to the infrastructure spending promised in the Tory Manifesto. This should be positive for the UK stock market as inevitably there will likely be incentives for UK firms to contribute towards these projects, irrespective of whether they are universally considered to be the right projects, for example HS2. One could also envisage reductions in corporation tax, possibly business rates and even capital gains tax in the forthcoming Budget.
All of these measures and even just the possibility that they could happen have sparked optimism in the UK as a place that is moving forward. It is no coincidence that these headlines will also help Mr Johnson distract from lingering Brexit concerns, as investment into the UK economy increases with a strong domestic message. Investment markets like certainty and a clear direction. The strong stance which Boris Johnson took last week sends exactly that message and so markets can move from uncertainty over whether Javid or Johnson win out in their Budget spending approach to which sectors will benefit the most from the increased spending and fiscal stimulus.
All told, not a message too dissimilar from our friends across the pond in the USA and their economy has thrived in the last few years, under, at times, a deeply unpopular leader. Concerns remain about the long term and how a more flexible approach to fiscal policy helps soothe the pain of austerity, but right now, there is an increased air of optimism in the UK, one which we were early to the party with, but one which perhaps is about to pull through.