Nadhim Zahawi, the new chancellor, will on Tuesday commit to bringing down inflation and rule out borrowing for tax cuts, in a sign that he will continue with the fiscal policies of his predecessor Rishi Sunak.
In his first speech since being appointed, Zahawi will also endorse Sunak’s plan for a radical overhaul of post-Brexit financial regulation to ensure Britain remains “one of the most dynamic financial centres in the world”.
Sunak quit earlier this month in protest at outgoing prime minister Boris Johnson’s leadership style and over differences on economic policy, particularly over Johnson’s insistence on tax cuts.
Zahawi was swiftly drafted in to replace Sunak, but the new chancellor will insist in his Mansion House speech in the City of London that tackling inflation remains a core priority for the government.
“The country should feel confident that we can, and we will, get inflation back under control,” he will say.
“That means delivering sound public finances to avoid pushing up demand still further, providing help for households as they deal with the worst price rises in over a generation.”
Zahawi’s tenure as chancellor could be shortlived; a new prime minister will be in place by September 5 and is likely to appoint their own choice as chancellor.
In the interim period, Zahawi’s Mansion House speech will indicate that Sunak’s policies will continue, not just in tackling inflation but also on overhauling regulation of the City.
Zahawi will say: “We want to make sure the UK remains the most open, inclusive, welcoming, competitive, safe and transparent place to do financial services business in the world.”
He will commit to repeal “hundreds of pieces of retained EU law and replacing them with a coherent and agile approach to financial regulation that is right for us”.
A Financial Services bill will be published on Wednesday setting out the government’s insistence that regulators must treat “growth and competitiveness” as secondary objectives alongside maintaining financial stability and sound institutions.
It will also contain controversial powers to allow ministers to “call in” regulatory decisions with which they disagree — a move which has provoked bitter disagreement with the Bank of England.
Andrew Bailey, BoE governor, has insisted on the importance of maintaining regulatory independence: he will also speak at the Mansion House banquet on Tuesday.
Sunak, as part of his bid for the Tory leadership, said he saw Brexit as a chance to shift accountability for regulation to parliament and away from “faceless regulators”.
Zahawi will say that reforming the EU’s Solvency II regime, which covers insurers, is an early example of the government’s new approach. Solvency II, which was introduced when the UK was part of the EU, stipulates how much capital companies should hold and where they can invest.
The chancellor will say that he wants UK insurers to have “more flexibility to invest in long-term assets like infrastructure”.
