We have a new government, and a new economic plan – but what exactly is it?

Even if there had been no Brexit, there would have been a case for rethinking economic policy, as our recovery has been socially and geographically uneven

Phillip Hammond walks into Downing Street on his first day as Chancellor (Reuters)

A new government; a new chancellor; a new economic plan.

We are just beginning to catch some sort of feeling for the ways in which economic policy will change under the new government. We know for example that the deficit-cutting programme will be slowed, for that has been made clear by both Theresa May and Philip Hammond. We know that monetary policy will be eased next month, or at least we have been given the strongest indication that this will happen by the Bank of England. And we know that there will be more focus on infrastructural investment, though quite how this will pan out is quite unclear.

All this is to the good. There will be a short-term issue of bolstering the economy though the next 18 months, for it does seem pretty clear that uncertainty about the new relationship that the UK has with Europe will undermine economic confidence. This will only partially be offset by the fall in the pound.

But even more important will be the new focus of what policy does for the economy in the longer term. Even if there had been no Brexit, there would have been a case for rethinking economic policy. The action taken under the Coalition did enable the UK to achieve a decent recovery from the mess of 2008. In aggregate the recovery has been all right. It has been slower than previous recoveries, but if you exclude the effect of the decline of North Sea oil production, not so much slower. And it has been as good a recovery as the US and Germany, and better than the other G7 nations.

The trouble is that it has been very uneven. It has been uneven both geographically, with London and the South East booming and the rest of the country lagging. It has been uneven in the way some sections of the population have done reasonably well in terms of rising incomes, while others have failed to get any benefit at all. And it has been uneven in its impact on equality, for while income inequality has declined a little, wealth inequality has soared.

The unevenness of the recovery was at the heart of a speech by Andy Haldane, chief economist of the Bank of England, in Port Talbot on 30 June. His message was: “So far at least, this has been a recovery for the too few rather than the too many, a recovery delivering a little too little rather than far too much….”

While monetary policy could not do everything to counter the impact of the referendum, it could have an important role in “cushioning the effects of any relapse in recovery … and making the future recovery everyone’s”.

This is an important statement because though he is only one member of the monetary policy committee, this view I’m sure reflects the general mood of the Bank, the house view you might say. We will get the policy action, or at least the first stage of it, next month.

We will have to wait until November for the Autumn Statement to have the equivalent clarity on fiscal policy, though we may catch more feeling about its general direction meanwhile. We can be confident that Philip Hammond is more technical and professional as opposed to political. He will, so to speak, be more of an Alistair Darling and less of a Gordon Brown or George Osborne. For many of us, this will be a bit of a relief.

He faces a challenge and an opportunity. The challenge will be to cope with the fiscal damage done by any slowing of the economy, yet maintain credibility about the general direction of policy. If the Institute for Fiscal Studies’ projections turn out to be right, the deficit will widen by between £20bn and £40bn a year. Since it has been narrowing by roughly £20bn a year, this adds at least a year to the deficit-cutting profile. But’s let’s wait until the Autumn Statement.

The opportunity is both more encouraging and indeed interesting. This is the chance to use the present ultra-low interest rates to carry out more infrastructural investment. There is plenty of money out there at dirt-cheap rates – too cheap, really, because investors are getting a dreadful deal. We don’t know how long these rates will last, so it makes sense to lock in as soon as possible. But just because money is cheap, it shouldn’t be wasted. It also should not appear on the government’s balance sheet. Someone else, and that means someone in the private sector, should take the risk.

You see, being chancellor now is quite a different job from being chancellor five years ago. Then it was crisis management, and whatever view you take of George Osborne, he did the job that had to be done. The job now will certainly be to “cushion the effect of any relapse in recovery”, to pick up on Andy Haldane’s phrase. But it will also be to help fix some of the longer-term problems of the economy, including under-investment in infrastructure.