Sunak may raise extra £26bn to fund spending spree

THE Chancellor may relax the fiscal rules to raise £26billion extra a year in his Budget next month as he prepares for the biggest spending boost for at least two decades.

Rishi Sunak is considering giving the Government the leeway to go one per cent above or below a balanced current budget – a move that could raise an extra £26 billion for hospitals, criminal justice, transport upgrades and schools.

The other Budget option, which would raise an extra £11billion, would relax the fiscal rules of Sajid Javid, his predecessor, to allow the Government to achieve a balanced budget within five, rather than three, years.

The moves on the fiscal rules could reduce the need to raise taxes amid signs of growing opposition among Tory backbenchers. Last night it was reported that Mr Sunak was expected to drop plans to cut pension tax relief.

The moves would come on top of an expected announcement of more than £70billion of spending on infrastructure projects, many of them in the North. The Resolution Foundation, a think tank led by Torsten Bell, a former Treasury official, has forecast that, due to the combination of increased current and capital spending, the total spend could rise to £1trillion for the first time by 2023-24. In a report published today, it says this would mean government expenditure would touch 40 per cent of Gross Domestic Product.

Borrowing is also likely to rise at next month’s Budget, the report authors said, increasing from £41billion in 2018-19 to £64 billion by 2021-22.

Jack Leslie, a Resolution Foundation economist, said: “The Chancellor’s bigspending plans to ‘level up’ the country through infrastructure projects will lead to a bigger state than at any point under Tony Blair, and mark a big shift for a traditionally small state Conservative Party. But new roads and rail lines are only part of the story for a government wishing to turn the corner on a decade of austerity.

“If the Chancellor wants to increase spending on day-to-day public services in a fiscally responsible way he will have to change another of his party’s traditional priorities – lower taxes. Higher spending will require higher taxes.” The Chancellor could also gain an £8 billion boost in 2022-23 thanks to lower interest rates and inflation lowering the burden of the Government’s debt pile, according to analysis from the Resolution Foundation.

Mr Sunak is also expected to use his first Budget to announce that parts of the Treasury will move to the North. A “significant” number of the Treasury’s 1,500 posts will be transferred to an “economic decision-making campus”, according to reports yesterday with the Tees Valley said to be favourite to host the hub.