Sajid Javid is preparing to use his first major set-piece as chancellor to confirm large increases in public spending, against a backdrop of spiralling political chaos over Brexit.
As the risks to the economy from leaving without a deal mount, the chancellor will take to the dispatch box to make funding announcements for the NHS, schools and the police when he unveils his spending review on Wednesday afternoon. Here’s what to expect.
Brexit
The rising chance of a no-deal departure will undoubtedly cast a long shadow over Javid’s debut Commons address as chancellor. There will have been a whirlwind of political manoeuvring from the start of the week by MPs attempting to block a no-deal Brexit, determined to wrest back some control after Boris Johnson announced plans to suspend parliament. Against that backdrop, Javid’s spending-round statement will occupy some of the increasingly limited time in the Commons for discussions about leaving without a deal.
The review – used for setting Whitehall departments’ spending limits to help with civil service planning – will only cover a 12-month period because of the uncertainty over the future health of the economy and the public finances. It will also present Johnson with a valuable platform for feelgood, electorate-friendly policies, as he seeks out as much support as possible.
Promises, promises
The main aim of the chancellor’s statement will be to formalise the prime minister’s pledges made since his elevation to Downing Street. Johnson has announced measures for increased spending on health, schools and the police. Taken together, they are expected to require about £6bn of additional spending and borrowing in 2020-21, with the largest chunk going towards reversing cuts to per-pupil funding in schools.
The government will also reveal the cost of hiring 20,000 more police officers, and about £1.8bn has been announced for hospitals.
The additional funding promises have stoked intense speculation that Johnson could be gearing up for an election. The prime minister has also promised tax breaks, which will predominantly help wealthier voters. However, economists believe Javid will wait for a full budget to reveal specific details here.
Fiscal rules
The measures announced so far won’t come cheap. As a result, Javid risks breaking a commitment not to raise public borrowing above limits set out in the Conservative manifesto. The chancellor said last week there would be no “blank cheque” for departments and that he would stay within the fiscal rules set by his predecessor, Philip Hammond.
Javid is bound by the rules to keep public debt falling as a percentage of GDP and to ensure borrowing, adjusted for the state of the economy, is below 2% of GDP in 2020-21. The self-imposed rules also call for the government to bring the public finances into balance by the mid-2020s – a promise economists say will be almost impossible to keep.
Javid probably has headroom of about £14bn to stay within the rules, based on the latest forecasts from the Office for Budget Responsibility, made in March.
Critics say the chancellor could avoid scrutiny by basing his plans on those forecasts. There will be no update to the forecasts on Wednesday and no new estimates until the next budget, the date of which is yet to be announced.
The economy has slumped to the brink of recession, with negative growth in the second quarter, and public borrowing has risen over recent months, meaning any new forecast would slash the headroom for new spending. The March forecast also presumed a deal would be struck with Brussels, which now looks increasingly unlikely.
The Resolution Foundation thinktank says at least £10bn of headroom could be erased by accounting for the latest developments in the economy – meaning Javid could smash apart the rules in short order.
Ending austerity
Javid is likely to use the spending round to declare that a decade of austerity is coming to an end.
This could mark the first time since 2007 that overall government spending has risen faster than inflation, giving him a basis to justify that message.
Critics say the increase will not be enough to reverse cuts imposed since 2010, while some departments could still miss out. Spending on justice, local government services and 16-18 further education are all currently about a fifth below 2010 levels and would require huge spending increases to reverse. Labour has voiced scepticism that the chancellor will do enough to end austerity, calling the spending round a “one-off pre-election panic-driven stunt budget”.
Benefits have been frozen for the past four years and the government has not said what its plans here are.
