Chancellor declares austerity is coming to an end with budget making little reference to risks of a no-deal Brexit

Philip Hammond declared “austerity is coming to an end,” on Monday, as he sought to reassure voters, and shore up the morale of fractious Tory MPs Theresa May needs to back her Brexit deal by peppering his budget speech with spending pledges and a surprise income tax cut.

As negotiations with the EU27 enter their frantic final weeks, the chancellor cast off his cautious reputation and opted to spend almost all of a £68bn windfall handed to him over the next five years by the independent Office for Budget Responsibility (OBR).

“Austerity is coming to an end, but discipline will remain. That is the clear dividing line in British politics today,” he told MPs, repeatedly stressing that Britain was at “a turning point in our nation’s recovery”.

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In an unexpectedly generous package, which will pump an additional £15bn into the economy next year, Hammond met colleagues’ demands to cushion the impact of universal credit, with a £1,000-a-year increase in the work allowance claimants can earn before their benefits are clawed back.

He announced a slew of other short-term giveaways, on everything from defence spending to potholes, and refrained from tax measures – such as a raid on pensions – that risked falling foul of the government’s lack of a secure majority.

One of only a handful of revenue-raising measures involved a £400m-a-year levy on larger tech companies, such as Google, Facebook and eBay. Hammond said the UK had tired of waiting for an international agreement to target the tech giants and was prepared to go it alone.

Hammond also confirmed that he will bring forward to 2019 the Conservatives’ manifesto pledge to increase the income tax personal allowance to £12,500, and the higher-rate threshold to £50,000, handing an income tax cut of up to £860 a yearto higher earners.

The chancellor had little choice but to loosen the purse strings, after Theresa May promised an end to austerity in her party conference speech earlier this month, in a bid to show her government has a political agenda beyond Brexit.

Working people cannot be fobbed off again with promises of a better tomorrow that never comes. Frances O’Grady, TUC

The OBR said the chancellor could have used the unexpected bonus of much lower than expected borrowing to meet his goal of putting Britain’s finances back in the black by the middle of the 2020s. Instead, the independent watchdog noted that Hammond had spent “fiscal windfall rather than saving it” in the largest easing of fiscal policy since its creation by George Osborne eight years ago.

However, Jeremy Corbyn, responding to Hammond’s upbeat speech, accused him of “broken promises”.

“What we’ve heard today are half measures and quick fixes, while austerity grinds on. And far from people’s hard work and sacrifices having paid off, as the chancellor claims, this government has frittered it away in ideological tax cuts to the richest in our society,” he said.

Hammond said that with a full departmental spending review due next year, Whitehall departments could expect their budgets to increase on average by 1.2% a year in real terms over the five years of the spending review period.

In a speech that made little reference to the potential economic risks of a no-deal Brexit, Hammond said the spending review could potentially be more generous if the process of leaving the EU goes smoothly.

“That is not the limit of my ambition. When our EU negotiations deliver a deal, as I am confident they will, I expect that the ‘deal dividend’ will allow us to provide further funding for the spending review. The hard work of the British people is paying off,” he said.

Earlier, the prime minister’s official spokesman had insisted all firm spending pledges made on Monday would be honoured, whatever the outcome. “All of the spending commitments that the chancellor will set out today are funded, irrespective of a deal,” he said.

However, a Treasury spokesman pointed out after the chancellor’s speech that 1.2% a year growth for Whitehall departments was a “forecast”; and once the NHS boost was included, it implied spending elsewhere would be flat in real terms.

The Resolution Foundation thinktank pointed out that once firm promises on key areas, such as aid, are included, some departments could even see cuts.

Facebook Twitter Pinterest Torsten Bell: ‘Tough times are far from over.’ Photograph: resolutionfoundation.org

Resolution’s director, Torsten Bell, said: “In today’s budget, the chancellor has significantly eased – but not ended – austerity for public services. However, tough times are far from over.

“The chancellor has set out plans to spend almost all of a very significant fiscal windfall on extra spending for the NHS, bringing to a close the era of falling overall public service spending. But unprotected departments are still on course for spending cuts into the 2020s – averaging 3% between 2019 and 2023.”

There was no end, either, to the cash freeze on working-age benefits imposed by George Osborne as he sought to cut the welfare bill in the wake of the 2015 general election.

The OBR said there had been little change to the outlook for the economy since it last reported in the spring, although it raised its growth forecast for both 2019 and 2020 as a result of Hammond’s budget package.

It added that the big picture was for stable but unspectacular growth of around 1.5% for the next five years, based on the assumption that Britain would have a smooth exit from the European Union.

Hammond’s pitch to the “strivers and the grafters” involved an announcement that the government would consult on future above-inflation increases in the national living wage (NLW) after it rises to £8.21 an hour next spring. The OBR said there was a risk that if the NLW was raised to two-thirds of the national median, it would cost jobs.

The TUC general secretary, Frances O’Grady, said: “Working people cannot be fobbed off again with promises of a better tomorrow that never comes. The budget does not undo the austerity that has devastated public services. And it lacks the investment needed to speed up wage growth after the longest pay squeeze in 200 years.”

With Brexit uncertainty choking off business investment, Adam Marshall, the director general of the British Chambers of Commerce, applauded the decision to raise the annual investment allowance from £200,000 to £1m for the next two years.

“In an atmosphere of unprecedented uncertainty and heightened political noise, the chancellor has demonstrated that he is listening to business concerns by delivering a budget that supports investment and growth.”

The budget also offered a boost for Northern Ireland, including a new city deal for Belfast. The deputy leader of the DUP, Nigel Dodds, claimed Hammond’s statement was worth a total of £1bn to the province. The Tories are reliant on the DUP for their parliamentary majority.

