‘No spending spree’ warning from Philip Hammond, who is likely to guard against economic damage of UK leaving EU

This article is more than 3 years old

This article is more than 3 years old

Philip Hammond is expected to use Wednesday’s budget to announce that tax revenues will be used to build up a reserve to deal with uncertainties arising from Brexit, rather than increase spending on the health service.

The chancellor has indicated that some extra money will be allocated for social care. The shadow chancellor, John McDonnell, has warned that £12bn should be immediately redirected to the NHS, warning that “the crisis is happening now”.

The government has announced the allocation of more than £500m from the National Productivity Investment Fund (NPIF) to help Britain’s innovators.

The money is part of a £23bn pledge first made in the autumn statement. Of this money, £270m will go to universities and businesses that are developing artificial intelligence, batteries for electric cars or manufacturing medicines. Another £90m will go to fund 1,000 PhD places while £200m will support research fellowships.



A budget in the shadow of Brexit leaves Hammond short of choices Read more

Hammond said on Sunday that he would be building up a reserve in case of difficulties arising from leaving the EU, although he stopped short from confirming a report in the Sunday Times that it would be £60bn.



He is expected to raise funds through some tax increases, including one imposed on self-employed workers through a change to national insurance rates. Hammond is also thought to be looking at increases in alcohol duty.



Appearing on the BBC1’s the Andrew Marr Show on Sunday, the chancellor warned there would be no major “spending sprees”. Instead, the UK would be prepared to “fight back” and “not slink off into the corner” if a trade deal with the EU could be reached, and would do “whatever it takes” to rebuild the British economy.

“If there is anybody in the European Union who thinks that if we don’t do a deal with the European Union, if we don’t continue to work closely together, Britain will simply slink off as a wounded animal, that is not going to happen,” Hammond said.

“British people have a great fighting spirit and we will fight back. We will forge new trade deals around the world. We will build our business globally.

“We will go on from strength to strength and we will do whatever we need to do to make the British economy competitive and to make sure that this country has a great and successful future.”

Hammond warned that while the economy was performing better than expected, there was still a deficit. “If your bank increases your overdraft limit, you don’t want to go and spend every penny in it,” he said. “We’ve got enough gas in the tank to see us through that journey … that seems like a sensible approach.”



Last autumn, Hammond was expecting to borrow £68bn in 2016-17, but the fiscal watchdog, the Office for Budget Responsibility, is now expected to reduce this by at least £10bn, close to the level predicted before the Brexit vote.

He is expected to use some of the funds to alleviate the worst effects of previous departmental budget cuts, but keep most of the funds for what he has cast as his main budget in the autumn.

The government has been under pressure to provide more money for the NHS and social care. On Saturday, tens of thousands of people marched in London to protest against “yet more austerity” in the health service.



Budget 2017: Hammond to tell us the Brexit vote could have been worse Read more

Reports have claimed that Hammond may allocate £1.3bn to social care. He said the economy was “performing extremely well” but that spending reductions were putting pressure on services.



This was particularly the case with adult social care, he said, but added that some councils were performing “extremely well” while others were struggling.

The chancellor said there was a case for taking a long-term, strategic view on how the costs of an ageing population can be met, but said that in the short term: “This is about good practice as well as budgets.”

Budget announcements are expected to include changes to tax laws that motorists to buy diesel cars. Reports claim he will also set an “effective floor” on the price of cigarettes and offer support for business rates.

The chancellor rejected calls from McDonnell for him to publish his tax returns.

“No. I have no intention of doing so. Just for the record, my tax affairs are all perfectly regular and up to date. But I think this demonstration politics isn’t helping the atmosphere in British politics.”

Labour insisted that the government should direct some of the unexpected windfall to health and social care.



McDonnell told Marr: “The independent estimate now on [how much is needed for the] NHS and social care is between £8bn and £12bn.

“We believe that the government now put aside, as is reported, £60bn – increased tax receipts have contributed to this as well – for a crisis in case of Brexit.

“The crisis is here now. We should prepare for Brexit but some of that money now needs to deal with the crisis in the NHS and social care.”

Public sector net debt – not including public sector banks – was £1.68tn as of the end of January, equivalent to 85.3% of GDP, according to the Office for National Statistics. It has increased by £91.7bn since January 2016, the ONS said.

Recent reports appear to show that the economic strength seen after the Brexit vote, which put the UK’s GDP growth in the front rank of developed nations, may be faltering.

The financial data provider Markit, which compiled a survey of the services and manufacturing sector, said on Friday that the slowing of business activity growth last month added to evidence that the economy had lost momentum.

Whitehall watchers said Hammond appeared to have let go of George Osborne’s tendency to spend as much available money as possible.

Jill Rutter, the programme director of the Institute for Government, said: “To have a chancellor who is able to resist the temptation to spend every pound of fiscal headroom instantly is, in current circumstances given future uncertainties, a welcome development.”