Budget deficit plans ‘not credible’

CHANCELLOR PHILIP Hammond’s goal of eliminating the budget deficit and balancing the books has “no credibility” and should be abandoned, MPs have said.

After last year’s Budget delivered a massive spending boost to the NHS, the cross-party Commons Treasury Committee said it was clear it was no longer Government policy to aim to run a surplus.

The committee dismissed Mr Hammond’s claim the UK could look forward to a “deal dividend” if the Government reached agreement with Brussels and avoided a “disorderly” no-deal Brexit. It also poured cold water on his assertion that the era of austerity was “coming to an end”, saying the Chancellor’s definition of what that meant was “expansive but also imprecise”.

The current stated aim of Government policy is to return the public finances to balance at “the earliest possible date” in the next Parliament.

The committee said the Chancellor would have remained on course to achieve that without any fiscal “tightening” – cutting spending or raising taxes – in the Budget in October.

Instead he opted for the “largest discretionary fiscal loosening” at any fiscal event since the Tories came to power in 2010, with a £20 billion-a-year cash injection for the NHS.

In evidence to the committee, Mr Hammond said he believed the best way to reduce the public debt to GDP ratio was to boost economic growth rather than running a budget surplus.

“Given that the Chancellor both appears to be disregarding the fiscal objective and has told the committee it is not the best way of reducing the public debt, it is now clear that the fiscal objective now has no credibility, so it cannot be used by Parliament to hold the Government to account,” the committee said.

“The committee recommends that it be replaced before the next Budget with something that accurately reflects Government policy and priorities, which clearly do not include running a budget surplus.”

The committee also rejected Mr Hammond’s claim there would be a Brexit “deal dividend” if the Government secured an agreement with Brussels, saying the assumption there would be an “orderly transition” was already built into the Office for Budget Responsibility’s forecasts.

“Beyond this, there could be some improvement to business confidence and investment following an orderly transition or a resolution of Brexit-related uncertainty that is not currently forecast by the OBR.

“It is not credible that this be described as a dividend,” it said.

The committee also questioned Mr Hammond’s argument that a combination of more generous funding of public services, real wage growth and a lower proportion of income going into taxation meant the “era of austerity” was ending.

The committee chairwoman Nicky Morgan said: “Claims by the Chancellor that austerity is coming to an end are expansive and imprecise.

“He should set out what he means in more measurable terms, especially as he will face more difficult choices at future budgets for how to fund such a pledge.”

A Treasury spokesman said: “Restoring the public finances to health is a result of good economic management, not luck.”

Claims austerity is coming to an end are imprecise.

Nicky Morgan