Philip Hammond has signalled he is prepared to spend billions of pounds on hospitals and the military later this year after positive public finance figures pointed to “light at the end of the tunnel” following a decade of austerity.
The Chancellor gave a strong hint that austerity will be eased at the Budget in late autumn if the public finances continue to improve, saying that rather than being a gloomy “Eeyore” he was now “positively Tigger-like”.
He said he was on course to meet his target for borrowing no more than 2pc of national income in 2020-21 leaving £15.4bn of headroom for higher spending on public services.
The admission in the debut Spring Statement, unveiled to MPs earlier today, will fuel demands from high-spending departments such as health and defence for billions of pounds more for their budgets in coming months. A tough winter for the NHS and rising concern about Britain’s ability to meet the threat from Russia have amplified calls for more generous spending.
The Office for Budget Responsibility also published the first official breakdown of how much money Britain will be obliged to pay to Brussels each year until the UK’s Brexit divorce bill – which it puts at £37.1bn – is settled.
The forecaster said that it will take the UK 45 years to pay off the bill – almost as long as Britain’s membership of the EU.
Although the vast majority of the money will be paid off within five years of Brexit in March 2019, the final payment of £50m is not scheduled to be made until 2064.
Mr Hammond’s plan for a spending spree was aided by the OBR upgrading growth projections by 0.1 percentage points to 1.5pc as “a turning point in the nation’s recovery from the financial crisis of a decade ago”.
This helped cut the deficit by an extra almost £5bn this year, and if it is sustained, he said it would give the Government the “capacity to enable further increases in public spending and investment in the years ahead”.
The OBR now expects Mr Hammond to hit his target of reducing the structural deficit to below 2pc in 2020/21 with the £15.4bn to spare.
However the OBR also cut its growth forecast by 0.1 percentage points in both 2021 and 2022, warning that the UK economy is already effectively at full capacity, limiting Mr Hammond’s future spending power.
The deficit will still be more than £21bn in 2023, the last year of full OBR forecasts, and the watchdog thinks it will take until 2027 to eliminate that annual borrowing completely – requiring more spending cuts or tax hikes, rather than spending giveaways.
Mr Hammond said the Government was set to run a “small” surplus on day-to-day spending in 2018/19, borrowing only for capital investment.
The forecasts confirmed “the first sustained fall in debt for 17 years, a turning point in the nation’s recovery from the financial crisis of a decade ago – light at the end of the tunnel”, he added.
Mr Hammond gave a strong hint that austerity will be eased at the Budget in late Autumn, telling MPs: “If, in the autumn, the public finances continue to reflect the improvements that today’s report hints at, then… I would have capacity to enable further increases in public spending and investment in the years ahead while continuing to drive value for money to ensure that not a single penny of precious taxpayers’ money is wasted.”
He held out the prospect of a pay rise for nurses saying there was “more to come if, as I hope, management and unions reach an agreement on a pay modernisation deal for our nation’s nurses and Agenda for Change staff who have worked tirelessly since the Autumn in very challenging circumstances to provide the NHS care that we all value so highly”.
A Treasury spokesman later said that the Chancellor was unlikely to use all of the £15.4bn, insisting that priorities for any spare money would be to “get the deficit down, keep taxes low and – if there is still flexibility – he has indicated that he would be in a position to do more to support public services”, he said.
The spokesman insisted the Treasury was still committed to bringing down the tax burden, saying: “We have already got a commitment to cutting taxes for example on the personal allowance, which rises to £12,500 by the end of the Parliament.
“[The Chancellor] wants to keep taxes low, meet the manifesto commitments and if there is further headroom, then he will consider doing more for the public sector.”
Saffron Cordery, the deputy chief executive of NHS Providers, said it was “encouraging that the Chancellor has acknowledged funding pressures faced by the NHS, which mean the service can’t deliver the levels of patient care set out in the NHS constitution”.
She said: “We need to see urgent steps put in train to ensure sustainable long-term funding for health and social care, because the current situation is unsustainable.”
Labour shadow Chancellor John McDonnell dismissed the improvements to the public finances announced by the OBR as “marginal” and said it was “astounding” that Mr Hammond was holding back any spending increases to the autumn.
Philip Hammond (left) hits back at John McDonnell (top right). Below right: Theresa May
He said: “Hasn’t he listened to the doctors and nurses, the teachers, the police officers, the carers and even his own councillors?
“They are telling him they can’t wait for the next Budget. They’re telling him to act now.”
He added: “This isn’t a government that’s preparing our country for the future. It’s a government setting us up to fail.”
But Mr Hammond dismissed Labour’s “doom and gloom” with a joke playing on his own reputation for pessimism.
“If there are any Eeyores in this Chamber, they are over there,” he told MPs, gesturing at the Labour front bench. “I, meanwhile, am at my most positively Tigger-like.”