May supported the Remain campaign in the lead up to the EU referendum but following Leave victory has said ‘Brexit means Brexit’ and pledged to unite the country and negotiate the best possible deal for the UK.
The quick and painless transition of May to prime minister means the UK has avoided two more months of uncertainty, which should be good for the markets.
The Ftse 100 index opened up 0.84% at 6,726 points on Thursday morning and the pound has rallied, up 0.65% against the dollar at 1.3232 and up 0.54% against the euro at 1.1918.
Now she is prime minister she can decide to trigger Article 50, which will start the formal two-year process of leaving the EU. However, the BBC reports she has said she won’t do this before the end of 2016.
Given the scope of the job May has already created a new role to help the UK navigate Brexit negotiations.
The Secretary of State for European Relations or ‘Minister for Brexit’, has gone to pro-Brexit back bencher David Davis.
Another important role for the talks will be the Secretary of State for International Trade, which has gone to Liam Fox, also a Leave supporter.
Theresa May has been swift in deciding who should take up the other key roles in her new cabinet.
Philip Hammond, previously Foreign Secretary and supporter of Remain, replaces George Osborne as Chancellor of the Exchequer.
He studied politics, philosophy and economics at Oxford University and has worked for companies specialising in manufacturing, consultancy, property and oil.
We don’t know much about what he has planned but he’s been described as a ‘fiscal hawk’ by insiders and the Conservative Party website states: ‘[Hammond] strongly believes that the first responsibility of Government is to promote economic stability, sound money, and prudent public finances… In a tough public spending climate, that means tackling the deficit, while maintaining capital investment to ensure Britain’s international competitiveness.’
Hammond will need to put together the Autumn Statement due in November, but he has already ruled out an emergency Budget. His work will revolve around avoiding an economic downturn.
However, May has given Hammond some leeway in stabilising the economy by scrapping government’s goal of reaching a budget surplus by 2020, which should mean spending cuts and any tax changes won’t be too aggressive.
Experts in the financial sector have some ideas on what should be Hammond’s agenda going forward.
Richard Buxton, head of UK equities and CEO, Old Mutual Global Investors reckons: “The Treasury can take a number of measures to help boost the economy, such as reducing stamp duty or cutting tax on petrol. However, I believe that we might eventually see more extreme fiscal stimulus: debt issuance to help back private sector or government schemes for infrastructure projects.”
Old Mutual Wealth financial planning expert Rachael Griffin thinks stamp duty could be temporarily suspended and corporation tax slashed.
She said: “The new chancellor could look to suspend stamp duty on homes under £500,000. With the average house price at £282,000 it could provide the required stimulus for the market during a period of exceptional uncertainty.”
“In light of the Brexit vote, the new chancellor could be more aggressive and take the UK below Ireland’s rate of 12.5%, tempting companies to stick with their British bases rather than move to the EU member state across the Irish Sea.”
Meanwhile accounting firm RSM reckons changes to the tax system with a new ‘Director Tax’ may be on the way. It thinks this could be set at 50% for directors whose pay exceeds the ratio for companies in their sector.
Protecting UK firms
Citing Kraft’s takeover of Cadbury and Pfizer’s failed bid for AstraZeneca May has May has said she will do more to prevent hostile foreign takeovers of UK firms.
In her Birmingham speech setting out what she would do if prime minister she said: “It is hard to think of an industry of greater strategic importance to Britain than its pharmaceutical industry, and AstraZeneca is one of the jewels in its crown. Yet two years ago the government almost allowed AstraZeneca to be sold to Pfizer, the US company with a track record of asset stripping and whose self-confessed attraction to the deal was to avoid tax.
“A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.”
May has said that more homes need to be built in order to help cool house prices and help young people find an affordable home.
On Monday she said: “Unless we deal with the housing deficit, we will see house prices keep on rising. Young people will find it even harder to afford their own home.
“The divide between those who inherit wealth and those who don’t will become more pronounced. And more and more of the country’s money will go into expensive housing instead of more productive investments that generate more economic growth.”
She was critical of Osborne’s approach so far: “Monetary policy – in the form of super-low interest rates and quantitative easing – has helped those on the property ladder at the expense of those who can’t afford to own their own home.”
May appears to want to help keep energy costs low.
In her Birmingham speech she said: “I want to see an energy policy that emphasises the reliability of supply and lower costs for users.”
The Northern Powerhouse
May has also suggested that the Northern Powerhouse plan devised by Osborne, which was largely focussed on Manchester, could be improved upon.
She said: “A plan to help not one or even two of our great regional cities but every single one of them.”
Industry and infrastructure
May has also signalled she want to get the economy moving by focussing on industry.
Speaking in Birmingham she said the UK needs “a proper industrial strategy to get the whole economy firing.”
May also seems to be keen on getting projects moving with investment from the government. Before landing the job as prime minister she said “more Treasury-backed project bonds for new infrastructure projects” should be considered.
May has also said she will crackdown on tax avoidance and evasion.
In Birmingham she pledged: “It doesn’t matter to me whether you’re Amazon, Google or Starbucks, you have a duty to put something back, you have a debt to your fellow citizens, you have a responsibility to pay your taxes. So as Prime Minister, I will crack down on individual and corporate tax avoidance and evasion.”
May also wants to get tough on irresponsible behaviour of big business.
She says she is concerned about the growing gap between what companies pay their workers and what they pay their top bosses.
One change she proposes is to make shareholder votes on corporate pay not just advisory but binding.
She also wants more transparency on bonuses and the publication of ‘pay multiple’ data which shows the ratio between a CEO’s pay and the average worker in a company.
May has suggested she is keen to clampdown on banks and utility firms that take advantage of a lack of competition.
She said: “I also want us to be prepared to use – and reform – competition law so that markets work better for people. If there is evidence that the big utility firms and the retail banks are abusing their roles in highly-consolidated markets, we shouldn’t just complain about it, we shouldn’t say it’s too difficult, we should do something about it.”
May has pushed a vision of One Nation which involves ‘a society that works for everyone not just the privileged few.’
Plans include having workers represented on company boards for the first time and as mentioned before giving shareholders a binding vote executive pay rather than an advisory one.
During her Birmingham leadership speech and again during her first speech as the UK’s prime minister outside Downing Street, she spoke out about other social reforms that need urgent attention.
She said: “Right now, if you’re born poor, you will die on average nine years earlier than others. If you’re black, you’re treated more harshly by the criminal justice system than if you’re white.
“If you’re a white working-class boy, you’re less likely than anybody else to go to university. If you’re at a state school, you’re less likely to reach the top professions than if you’re educated privately.
“If you’re a woman, you still earn less than a man. If you suffer from mental health problems, there’s too often not enough help to hand.
“If you’re young, you’ll find it harder than ever before to own your own home.”