Philip Hammond has paved the way for raising government spending after Britain leaves the European Union, should the public finances continue to improve, after revealing a short-term lift for economic growth.
In the government’s first spring statement, the chancellor said the economy was on track to grow a little faster than expected this year, despite the prospects for weaker growth in the medium term. Meanwhile, he said the budget deficit – the difference between public spending and income from taxes – was also set to beat expectations.
Promising a potential increase in spending that will be seen as a post-Brexit war chest or funds for an election at the end of the current parliament, the chancellor said he would use the budget this autumn to set out spending his expectations for 2020 and beyond, with a full spending review next year.
If in the autumn the public finances continue to reflect the improvements outlined on Tuesday, he said the government would “have capacity to enable further increases in public spending and investment in the years ahead”.
The economic upgrade revealed on Tuesday from the government’s independent forecaster, the Office for Budget Responsibility, points to GDP growth of 1.5% this year in a slight improvement by just 0.1% from the previous estimate made in November. The OBR also said it expected public borrowing will be £45.2bn this year – about £4.7bn lower than was previously forecast.
The chancellor said the latest estimates showed the country was a turning point a decade on from the financial crisis. “[There is] light at the end of the tunnel. Another step on the road to rebuilding the public finances decimated by the party opposite,” Hammond said.
John McDonnell, the shadow chancellor, said Hammond had shown astounding complacency by failing to ease austerity: “[He] proclaimed that there is light at the end of the tunnel. But this shows just how cut off from the real world he is.”
The chancellor had promised MPs a short speech of about 20 minutes to deliver the government’s first spring statement, deferring any tax and spending announcements to the budget, which has been moved to the autumn.
The government’s slender majority meant Hammond had limited room for manoeuvre and scant political cover for any missteps, meaning he was always likely to make few changes despite calls from Labour and some Tories to ease almost a decade of austerity.
However, the chancellor’s robust assessment of the economy and promise of higher levels in spending in future could strengthen the resolve of Brexit supporting Tories pushing for a tougher stance against Brussels. The chancellor also announced a series of consultations, including a call for evidence on cracking down on plastic waste.