Hammond to loosen Budget purse strings after PM declares austerity in over

Philip Hammond will announce a £2 billion increase in funding for mental health services as he delivers what is expected to be his final Budget before Britain leaves the EU.

After weeks of turmoil over Brexit, Tory MPs will be looking to the Chancellor to raise party morale with his annual financial statement on Monday.

He is expected to respond to Theresa May’s declaration in her Conservative Party conference speech that the era of austerity was finally ending with a cautious loosening of the public spending purse strings.

However he coupled it with a warning at the weekend that the measures he is setting out depend on a successful outcome to the Brexit negotiations with Brussels.

In the event of a no-deal break with the EU, he said he would be forced to tear up his plans and institute an emergency budget, while setting the economy on a “new direction”.

That prompted renewed accusations from Labour that ministers are preparing to turn Britain into a low tax, low regulation offshore economy along the lines of Singapore.

Mr Hammond insisted that was not the outcome he expected and he remained confident there would be an agreement with Brussels.

The Chancellor goes to the Commons buoyed by an estimated £13 billion windfall due to better-than-expected Government borrowing figures.

It is thought he will announce extra cash for roads – with a £28.8 billion five-year programme of investment in major routes – broadband, social care and the armed forces, as well as help for small retailers.

The additional funding for mental health will be used to pay for the provision of support in every major A&E department, as well as more specialist ambulances and school mental health teams.

Labour – which is calling for a massive increase in spending to reverse what it says is the damage caused by austerity – was sceptical, suggesting some of the money was simply recycling previous announcements.

Mr Hammond also indicated he was ready to bow to the growing clamour from Tory backbenchers for extra cash to ease the transition to Universal Credit when its rolls out nationally from next year.

Many MPs fear that without further support low-paid constituents will be plunged into severe financial difficulties, prompting former prime minister Sir John Major to warn of a voter backlash akin to the poll tax protests which helped bring down Margaret Thatcher.

However the Chancellor was also at pains to stress that major decisions on future spending will not be taken until the spending review next year by which time it is expected the outcome of the Brexit negotiations will be known.

“Once we get a good deal from the European Union and the smooth exit from the EU, we will be able to show the British people that the fruits of their hard work are now at last in sight,” he said.

Mr Hammond still also has to fund the promised £20 billion-a-year increase in NHS funding in England over the next five years announced by Mrs May in June.

While the improvement in the public finances has eased some of the pressure for tax increases, it is likely that the Chancellor may still have to find additional revenue from somewhere.

One option could be a raid on the tax reliefs given to pensions savers, although that would be likely to provoke a fierce backlash from Tory MP which the Chancellor and the Prime Minister may be anxious to avoid.

Copyright (c) Press Association Ltd. 2018, All Rights Reserved. Picture (c) David Mirzoeff / PA Wire.