It’s time for the Chancellor to end austerity

With the current budget back in the black, Britain should increase spending on health and the military

Next Tuesday, when the Chancellor, Philip Hammond, makes his Spring Statement, he should announce the end of austerity. “Eight years after we began the task of dealing with Labour’s debt crisis,” he could say, “we have reached a current budget surplus. After the sacrifices made by the public, after the heroic efforts of Britain’s public servants and after the difficult decisions we had to take, we have made it. Austerity, Mr Speaker, is no more.”

In its place, Mr Hammond could establish new fiscal rules that allow more borrowing to invest in the things we know improve economic growth and deliver a guaranteed return, and start to increase spending as the economy and tax receipts grow.

Reaching a current budget surplus – with tax revenues covering all day-today spending, but not investment – is a huge achievement, and the Chancellor should savour it. George Osborne was right to establish his deficit reduction programme, and Mr Hammond was right to see it through until the surplus was reached. But a shift is now needed.

Maintaining fiscal discipline remains vital, but the debt crisis has receded and the big economic issues we face are no longer about fiscal credibility but our poor productivity and whether growth is fast enough. Increased investment to improve the productivity of the economy – on housing, research and development, and infrastructure – would aid growth and boost our economy in the regions.

The next spending review, due next year, should be brought forward, because there is also now space for the Government to increase current spending, gently. Ministers will fight for their share of the money, but the priorities must surely be the NHS and the Armed Forces.

Since austerity began, health spending has been protected: in the 10 years from 2009-10, health spending will have risen by 12 per cent. But adjusting the figures for our growing and ageing population, per capita spending will have fallen by 1.3 per cent over that period. The King’s Fund estimates that, in the next financial year, the NHS will get £4 billion less than it needs, and it is difficult to imagine that the events of January – when operations were postponed and GPS were drafted into Accident and Emergency wards – will not be repeated next winter.

The military has also been protected, in the sense that the UK remains committed to meeting the Nato target of spending at least

2 per cent of GDP on defence every year. But there is a financial hole in the commitments outlined in the 2015 Strategic Defence and Security Review, and military leaders are considering reducing the number of warships and helicopters and cutting the Army from 82,000 to 71,000 soldiers or fewer. At a time when the threats we face are growing in their danger and diversity, and as we leave the EU and forge a global role for ourselves, defence spending needs to increase.

Sceptics will undoubtedly say this approach is wrong. They will say we should still aim for an overall budget surplus, including both capital and current spending. But if we can borrow cheaply to fund spending with a guaranteed return for the taxpayer, we should do so.

Others will say we should use the surplus to pay down the stock of debt. We do need to reduce the national debt, but we also need to maximise economic growth and fund vital services properly. The correct approach is to find a balance in how to use the proceeds of growth now we have a current budget surplus.

Some will argue that we need to stick to existing spending plans and build up a Brexit “war chest”, in case the negotiations go badly. But spending decisions that help to improve our economic growth while Brexit is still live will help us in the negotiations.

Others will agree that it is time to change fiscal policy, but that tax cuts, not spending increases, must come first. But as David Willetts argued in an important speech on Monday, changes in demographics dictate that we need to spend more on health, social care and pensions, while still funding education and other important services. The reality of our ageing society is that future decisions about tax in Britain are likely to be about who pays what, rather than how much we can cut tax for everyone.

Renewing while they are still in government is one of the hardest challenges political parties face. And the Conservatives have a tendency, having often been elected to clear up an economic mess left by Labour, to leave it too late before moving on from taking the difficult decisions. But the time for them to do so is now.

The Government has achieved its surplus. It can invest in the economy for the long term. It can start to increase spending on public services. It can show that the Conservatives are more than just cutters: they have a broader and more ambitious economic mission and a deep sense of social justice. Mr Hammond must declare an end to the Age of Austerity.