Chancellor Philip Hammond has fired back over criticisms of the autumn Budget, saying that ending austerity should not mean increased spending in every government department.
Hammond today said bringing an end to austerity was “also about delivering wage growth and leaving more in people’s pockets”, as part of his department’s response to the Treasury Committee’s report on the 2018 Budget.
The Committee in February criticised the chancellor’s claim in the Budget that “austerity is coming to an end”, saying his explanation that this meant more generous funding of public services, real wage growth and lower taxes was “expansive but also imprecise”.
Today Hammond said: “It would be odd to define ending austerity as meaning that every department sees an annual real terms increase in its budget.”
“The focus should be what we achieve for public money, not just how much we spend,” he said.
In February the Committee, a parliamentary body whose job it is to scrutinise the Treasury, said that this year’s upcoming government spending review would be “when the chancellor will need to substantiate his claims to be ending austerity”.
The Treasury today kept its cards close to its chest on how expansionary it would be. “The NHS is our number one funding priority,” it said. It promised no other specific extra spending: “Day-to-day departmental spending outside the NHS is also set to rise in line with inflation.”
Hammond’s department also responded to Committee arguments that it was “disregarding the fiscal objective” to balance government spending with income by the mid-2020s after Hammond all but spent a tax windfall on the NHS in the autumn Budget.
The government insisted it was within “touching distance” of the target and that it “remains committed to meeting its fiscal rules and reducing debt”.
However, the Institute for Fiscal Studies (IFS), a leading independent think tank, said at the time of the Budget that it “seems likely that this target will not be met”. The IFS predicted that the public spending deficit will amount to £20bn in 2023-24.
Hammond’s department also defended his statement that there would be a “deal dividend”, bringing a boost for the economy as consumer and business confidence improved, if Britain leaves the European Union with an agreement.
The Treasury Committee said that the Office for Budget Responsibility’s (OBR) official forecast already assumed that the UK would make an orderly transition, “therefore, no “deal dividend” over and above the existing forecast could be attained”.
The Treasury said that official bodies had forecast “a pick-up in GDP and business investment growth in the medium term” in the event of a deal.
However, the Treasury Committee’s February report argued that “it is not credible” that an improvement in business confidence and investment “be described as a dividend”.
The Treasury said that its plans for “departmental budgets for future years” would be laid out in its comprehensive spending review, due later this year. It is expected to lay out budgets until 2023.
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