London Daily

Focus on the big picture.
Monday, Oct 05, 2026

How new chancellor Nadhim Zahawi could affect the UK's economy and taxes

How new chancellor Nadhim Zahawi could affect the UK's economy and taxes

Many are already asking not merely whether the new chancellor will cut taxes, but whether that risks driving inflation even higher.

It is tempting, given the UK has a new chancellor and given Downing Street is dropping heavy hints about tax cuts, to start wondering out loud about what the past 24 hours' events mean for economic policy.

Many are already asking not merely whether Nadhim Zahawi will cut taxes, but whether that risks driving inflation even higher, just as the Bank of England fights to bring it under control.

Yet in moments like this, the best thing we can do is to take a deep breath.

The most likely outcome in the coming months is not a radical change of economic policy, but precisely the opposite: policy stasis.

That, as we'll see in a second, is pretty much what markets are betting on.

Why? Well, most blindingly obvious is the fact that with resignations still continuing, there is no guarantee Boris Johnson can survive the coming weeks.

We may be in for another leadership election and weeks, if not months, of internal party wrangling.

But let's presume he does survive.

Let's imagine Mr Zahawi does indeed plan to tear up his predecessor's economic plans, slashing taxes rather than raising them.

Let's imagine he tables an emergency budget, which dramatically turns the economic tiller.

Those changes, which will likely be extremely controversial among the sizeable wing of the Tory party which cares about managing the size of the deficit - the hawks, as some would call them - will then need to be approved in a finance bill.

Of all the pieces of legislation governments pass, none are more important than finance bills. If you fail to pass them, your ability to govern is essentially over.
Now, the

Conservatives still have a hefty mathematical majority, but given how many MPs and ministers have publicly disavowed the prime minister, it's no longer a given that he could pass a finance bill.

Even though many Tory MPs support the idea of tax cuts, let's not forget there are also many MPs (including the Rishi Sunak/Sajid Javid wing of the party) who are equally if not more worried about the Tories losing control of the deficit.

So, even supposing all of the above comes to pass, it's highly unlikely that the new chancellor could pass (or would even attempt to pass) a finance bill with any controversial legislation, or dramatic changes in economic policy.

That raises another question though: does the prime minister now attempt to find ways to circumvent this, trying to pass key economic legislation in ways that don't risk a Parliamentary rebellion.

Likelihood of any radical changes is quite low


Either way, it all underlines that however radical might be the words coming out of Downing Street about economic policy - about cutting VAT or income tax, for instance - the likelihood of any of this coming to pass is actually quite low.

Perhaps that helps explain why markets seem not to have changed their mind all that much about UK economic policy over the past 24 hours.

The pound - which serves as a sort of barometer in moments like this - was, at the time of writing, about the same level it was before Sajid Javid and Rishi Sunak resigned.

Trying to explain away currency movements is a fool's game, but if traders had been genuinely concerned about a dramatic change in economic policy, you'd have likely seen a big change in the value of the pound.

Instead, it sits more or less where it was before the resignations: at the lowest level against a basket of other currencies in more than two years. This is cause enough for concern - before we get to the politics.

Investors are not very confident about the UK's economic prospects for all sorts of reasons - recession risks, inflationary spiral risks, Brexit damage.

For the time being, this latest chapter of political chaos seems not to have changed their outlook either way.

Newsletter

Related Articles

0:00
0:00
Close
BT Accused of Pressuring Vulnerable Customers During Digital Landline Shift
British Carmakers Warn of Growing Pressure From EU-China Tariff Dispute
Green Party of England and Wales Adopts Motion Defining Zionism as Racism
Medical Charity Threatens NHS Legal Action Over Two-Year Autism and ADHD Assessment Waits
British Transport Police Report Record Rise in Violence on Railways
Glasgow Council Workers Face Pay Cuts Under Fire-and-Rehire Plan
British Medical Groups Press Prime Minister Andy Burnham to Cancel £330 Million Palantir NHS Contract
UK Faces Record Bluetongue Outbreak Across Livestock Farms
UK Schools Report Thousands of Child-on-Child Sexual Offences
High Court Overturns Ban Blocking Gaza Families From Reuniting With Relatives in UK
G7 Authorizes Emergency Fuel Release as UK Diesel Prices Hit £2 a Litre
France and Italy Draw 1-1 in Nations League Match
Pope Leo XIV and Prince Albert II of Monaco Meet in Metz
SNCF Expands Low-Cost Ouigo High-Speed Service Between Lyon and Bordeaux
Paris Expands Dedicated Cargo Bike Routes for Urban Deliveries
French Film Industry Pushes for Tighter Streaming Investment Rules
Marseille Court Hands Down Prison Terms in Public Procurement Corruption Case
LVMH and Kering Rely on US Demand as Chinese Luxury Spending Slows
Toulouse Aerospace Sector Launches €80 Million Modernization Fund
Javier Milei Courts French Investment in LNG and Lithium
Mistral AI Launches Sovereign Model for European Public Services
French Competition Authority Fines Retailers €40 Million Over Misleading Promotions
France Records Exceptional Electricity Exports as Nuclear Output Recovers
Dassault Aviation Expands Rafale Assembly Capacity at Mérignac
Sanofi Invests €1 Billion in New Biologics Production Hub Near Lyon
France Protests Germany’s Extension of Border Controls Into 2027
French Public-Sector and Transport Unions Threaten National Strike
France Deploys Riot Police After Violence in Lyon Suburbs
French Anti-Terrorism Prosecutors Investigate Radicalized Flydubai Co-Pilot
France’s Defense Budget Surpasses NATO’s 2% of GDP Target
French Government Faces No-Confidence Threat Over Budget
France and G7 Release 100 Million Barrels From Strategic Oil Reserves
France Convenes Emergency Defense Council Over Threats to Commercial Shipping
France and Germany Coordinate Military Response After Russian Strikes on Kyiv Infrastructure
UK Police Release Six Iranian Nationals on Bail After RAF Fairford Security Alert
UK Business Confidence Falls as Energy Costs and Tax Uncertainty Rise
Cornwall Insight Warns UK Energy Bills Could Rise 16% in January
UK Introduces Zero VAT on Household Electricity Bills
UK 30-Year Gilt Yield Hits 6% as Bond Market Pressures Intensify
UK Introduces Stricter Subcontractor Checks and Expanded Trade Union Access
Green Party Proposes Three-Year Emergency Freeze on Private Rent Increases
UK Treasury Committee Seeks Tax Clarification Over Manchester City Investigation
Royal Marines Deploy to Faroe Islands for Northern European Security Exercise
UK Business Confidence Weakens as High Costs Delay Investment
UK GDP Growth Revised Up to 0.5% in Second Quarter
Bank of England Warns of Financial Stability Risks From Autonomous AI
UK Expands Early Prisoner Release Scheme to Ease Overcrowding
UK Records Worst Bluetongue Outbreak on Record Across Livestock Farms
UK Government Faces Shrinking Fiscal Headroom Ahead of October 28 Budget
UK 30-Year Gilt Yield Reaches 6% as Energy Shock Drives Borrowing Costs Higher
×