Javid promises ‘new economic era’ with pre-election spending spree
Sajid Javid’s decision to boost spending with the possibility of an early election looming was branded a ‘grubby’ stunt by Labour.
Sajid Javid said he was “turning the page on austerity” with a £13.4 billion spending spree aimed at boosting Tory chances in the expected early election.
The Chancellor set out plans to increase spending in 2020-21 focused on the “people’s priorities” including the NHS, schools and the police.
But experts warned that Mr Javid’s pre-election cash injection would risk breaking the fiscal rules on Government borrowing and failed to reverse the effects of a decade of squeezed budgets.
Shadow chancellor John McDonnell branded Mr Javid’s actions a piece of “grubby electioneering” and accused the Government of “pretending to end austerity when they do nothing of the sort”.
The spending plan for a single year was fast-tracked to clear the decks ahead of Brexit, with the normal multi-year settlement planned for next year.
By setting out spending increases, Mr Javid and Boris Johnson hope to neutralise Labour attacks in any upcoming election about the squeeze on funding for public services since 2010.
The Chancellor announced an extra £13.4 billion of spending for next year, relative to existing plans.— IFS (@TheIFS) September 4, 2019
In the absence of offsetting tax rises, it is touch-and-go whether Sajid Javid will breach his current fiscal rules.
More #SpendingReview analysis: https://t.co/RUHTwYSH3E pic.twitter.com/kItgBHraf2
Mr Javid told MPs: “We are turning the page on austerity and beginning a new decade of renewal.
“A new economic era needs a new economic plan and today we lay the foundations with the fastest increase in day-to-day spending in 15 years.”
The plan would add £13.4 billion to existing plans for public spending including £1.7 billion for capital spending and marks a 4.1% increase on spending in 2019-20.
Measures to boost health spending, recruit extra police officers and increase funding for England’s schools had already been announced before Mr Javid’s statements.
He told MPs he was “delivering on the people’s priorities across the NHS, education and police”.
Other measures announced by the Chancellor included:
– A promise that no Whitehall department will be cut next year, with all ministries having their budget for day-to-day spending increased at least in line with inflation
– Councils will have access to an additional £1.5 billion to fund social care next year
– Funding to tackle homelessness will rise by 13%, an extra £54 million
Despite the increased spending, Mr Javid insisted “we won’t be writing blank cheques”.
But he said the fiscal framework would be reviewed at the Budget later this year “to ensure it meets the economic priorities of today, not of a decade ago”.
The Institute for Fiscal Studies said it would be “touch-and-go” whether Mr Javid managed to keep within the existing target of keeping the deficit below 2% of GDP set for 2020/21 after turning on the spending taps.
The announcements would not be enough to return all departments’ budgets to pre-austerity levels, the respected public finance think tank said.
The Home Office, Ministry of Justice and Department for Environment, Food and Rural Affairs budges would still be 17% lower on average than a decade earlier.
And the think tank warned that the impact of a no-deal Brexit could weaken the economy and push up public borrowing, meaning Mr Javid’s announcements would “represent a pause, rather than an end, to austerity for spending on public services”.
Ben Zaranko, research economist at IFS, said: “The Chancellor confirmed today a 4.1% real increase in day-to-day public service spending next year, with no department facing a real cut to its budget.
“But spending will still be 3% below its level a decade ago, and more than 9% lower in per person terms.
“Non-health budgets have also lost out to rising NHS funding: real spending outside the Department of Health will still be 16% lower (21% lower in per person terms) next year than in 2010-11.”
Borrowing now set to be a lot higher next year than projected in the spring and would be much higher still with no deal. Government priorities seem to have changed from overwhelming focus on deficit to putting spending needs first. For now at least. https://t.co/DE9rtJSRz6— Paul Johnson (@PJTheEconomist) September 4, 2019
IFS director Paul Johnson added that Mr Javid was taking a gamble by making spending announcements without the latest Office for Budget Responsibility forecasts.
“As it stands, there looks to be a very real risk of having to choose between tax increases or missing his current fiscal targets come the Budget later this year – even with a smooth departure from the European Union,” Mr Johnson said.
The Treasury said the spending announcements reduce the fiscal “headroom” for extra borrowing to approximately £1.6 billion.
“In the event that we leave with a no-deal and further funds are required, the Treasury will make them available,” the source said when asked if further borrowing would be required.
The Chancellor’s first major statement was repeatedly criticised by Commons Speaker John Bercow for deviating from the topic of the spending round, straying into comments on Brexit and attacks on Labour.
In his response to Mr Javid’s Commons statement, Mr McDonnell condemned the “pathetic sums” offered to Whitehall departments that were “on their knees” after almost a decade of austerity.