Chancellor: This is a turining point in Britain’s recovery

. . . but critics say spending spree means we won’t balance books

PHILIP Hammond hailed a ‘turning point in our nation’s recovery’ yesterday after years of dealing with Labour’s record £153billion deficit.

Thanks to stronger-than-expected tax receipts, he was handed a windfall of £73.8billion over the next five years.

However, rather than use the cash to eliminate the deficit, the Chancellor chose to spend it – and spurn the opportunity to take Britain back into the black for the first time since 2001.

As a result, the Government will still be borrowing £19.8billion in 2023-24 – casting doubt over Mr Hammond’s pledge to balance the books by 2025-26 at the latest.

Robert Chote, chairman of the Treasury’s independent watchdog, the Office for Budget Responsibility, said the Government was on target to run a surplus of £3.5billion in 2023-24 before Mr Hammond’s giveaway.

‘But, as we have heard, the Government has spent the fiscal windfall – mostly on health,’ he said. ‘So rather than a surplus in 2023-24, we forecast a deficit of around £20billion – little changed from the previous year.’ Mr Chote added that ‘the Government does not seem to be on course to meet the objective’ of balancing the books by 2025-26.

The OBR also revealed that the tax burden will this year hit 34.6 per cent of our gross domestic product, the highest level since 1970. However, the watchdog confirmed that the national debt peaked at 85.2 per cent of GDP in 2016-17, and is on course to fall to 74.1 per cent in 2023-24.

Mr Hammond hailed the ‘turning point in our nation’s recovery’, and Treasury officials insisted that the objective of balancing the books by the middle of the next decade remains in place. The deficit hit a record high of £153.1billion in 2009-10 under Labour. It fell to £39.8billion last year and is on course to hit £25.5billion this year.

‘We inherited the highest budget deficit in our peacetime history,’ said Mr Hammond. ‘But after eight years, the hard work of the British people is paying off. And we will not squander their efforts.’

The Chancellor declared: ‘Austerity is coming to an end – but discipline will remain.’

However, Mark Littlewood, director general of the Institute for Economic Affairs, said: ‘In an attempt to signal the end of austerity, it appears this government has given up on deficit elimination. It will be more than a quarter of a century since the government last balanced the books. Fiscal responsibility is being sidelined, giving way to short-term giveaways and unaffordable pledges.’

Yesterday also saw the OBR admit it had been too gloomy about the outlook for Brexit Britain. Although the watchdog cut its growth forecasts for this year from 1.5 per cent to 1.3 per cent, it raised the outlook for 2019 from 1.3 per cent to 1.6 per cent, and for 2020 from 1.3 per cent to 1.4 per cent.

The OBR also said it expects unemployment to fall from the current rate of 4 per cent to just 3.7 per cent next year, a level not seen since 1974. The number of people in work is set to rise by 800,000 by 2023 to 33.2million, taking gains since 2010 to 4.2million.

‘Britain’s jobs miracle is set to continue,’ Mr Hammond said.

The OBR said this brighter outlook, strong tax receipts and spending restraint by Whitehall handed Mr Hammond an extra £12.7billion this year, rising to £19.3billion in 2022-23.

Instead of banking the cash, Mr Hammond embarked on a major Budget giveaway, increasing spending by £98.4billion over six years. He also announced £5.1billion of tax cuts over the same period. The OBR said: ‘Buoyant tax receipts and an improved outlook for employment have delivered the Government a significant fiscal windfall since March, sufficient to deliver its objective of a balanced budget by 2025.

‘But this had already been swallowed up by the Prime Minister’s promise of more money for the NHS in June, to which the Chancellor has added a further nearterm tax and spending giveaway.

‘This leaves the medium-term outlook for government borrowing little changed since March.’

As a result, the deficit is due to fall to £25.5billion this year, before rising again to £31.8billion next year. It then falls to £26.7billion in 2020-21, £23.8billion in 2021-22 and £20.8billion in 2022-23 before reaching £19.8billion in 2023-24.

While the national debt is falling as a proportion of GDP, it will continue to rise until the books are balanced. It is set to increase from £1.8trillion this year to almost £1.9trillion in 2023-24, with debt interest payments rising from £39.8billion this year to £46.8billion by 2023-24.

Howard Archer, chief economic advisor to the Ernst and Young Item Club, said: ‘It looks questionable as to whether the Chancellor can get the budget into balance by the middle of the next decade.’

‘The British people’s hard work is paying off’