Chancellor Sajid Javid declares end of austerity5 min read

0
473

javid

The government has declared it has “turned the page on austerity” as it set out plans to raise spending across all departments.

Chancellor Sajid Javid outlined £13.8bn of investment in areas including health, education and the police in what he said was the fastest increase in spending for 15 years.

The plans cover one year and come amid intense political turmoil over Brexit.

Labour criticised the spending plans as “grubby electioneering”.

Mr Javid said: “No department will be cut next year. Every single department has had its budget for day to day spending increased at least in line with inflation.

“That’s what I mean by the end of austerity.”

But the shadow chancellor, John McDonnell, accused Mr Javid of “meaningless platitudes”.

“Do not insult the intelligence of the British people,” he said.

He accused the government of “pretending to end austerity when they do nothing of the sort”.

Image copyright
House of Commons/PA Wire

Image caption

Shadow chancellor John McDonnell criticised the government’s spending round

Is this really the end of austerity?

Mr Javid is not first chancellor to claim that austerity is on the way out.

His predecessor Philip Hammond said that the “era of austerity is finally coming to an end” in his autumn Budget last year, when he promised a £30bn boost in public spending by 2024.

The director of the Institute for Fiscal Studies, Paul Johnson, aid Mr Javid’s plan signalled a “real change in direction on spending but most areas of public service spending were still much below 2010 levels”.

“Health is the big exception,” he said.

Overall, the IFS said spending would 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,” it added.

Mr Johnson also warned that the current weakness in the UK economy could weigh on the government’s declaration of the end of austerity.

“We of course live in a time of extreme economic uncertainty and I think the big risk in saying that austerity is over is that the economy starts to do significantly worse, which it might if we have a no-deal Brexit,” he said.

“Then the deficit and debt will start rising and we are in danger of having another dose of austerity to get that over with for a second time.”

What were the big announcements?

  • £13.8bn in extra day-to-day spending for 2020-21, representing a 4.1% uptick
  • NHS funding increase of £6.2bn next year, most of which was already announced under Theresa May’s government
  • Education spending increase of £7.1bn by 2022-23 compared to the current fiscal year
  • Secondary schools to be allocated a minimum £5,000 per pupil, primary schools will get £3,750
  • £750m for 20,000 police officers including £45m to hire 2,000 police by March next year
  • Home Office day-to-day spending to increase by 6.3%
  • Ministry of Defence funding to increase by £2.2bn or 2.6%
  • Confirmation of an additional £2bn in Brexit preparation funding, on top of £2.1bn already announced.

Won’t Brexit change the plans?

This was a spending round not a review.

The difference is that Mr Javid’s plans are only for one year and not the usual three-year strategy set out by the chancellor because of the ongoing uncertainty over the impact of Brexit.

Mr Javid’s was also a very political speech.

He laid out the spending plans against the possibility that the UK is heading for another general election – the country’s third in five years.

Prime Minister Boris Johnson said Britain will go to the polls if he is forced to request an extension to the 31 October deadline for the UK to leave the European Union.

Mr Javid was criticised twice during his speech by the Speaker of the House of Commons John Bercow for talking about a bill – which MPs will vote on later today – that would force Mr Johnson to ask the EU for a delay in Britain’s exit, instead of focusing on the spending round.

Mr Bercow said that it was “very, very unseemly”, adding: “It bothers me greatly that the right honourable gentleman in the course of a statement seems to be veering into matters, not even tangential but unrelated to the spending round upon which he is focused.”

What does the government’s independent watchdog say?

The Office for Budget Responsibility (OBR) hasn’t said anything because this is a separate spending round and has been sperated from the Budget.

As a result, there are no new forecasts from the independent fiscal watchdog which means the chancellor’s spending plan is based on predictions published back in March by the OBR.

Under those forecasts, the government had around £15bn to borrow within its self-imposed overdraft limit of 2% of the value of the national economy.

Since then, the UK’s gross domestic product (GDP) shrank by 0.2% during the second quarter.

If it contracts again between July and September, the country will officially be in recession, which is defined as two consecutive quarters of negative growth.

On Wednesday, data measuring activity in the UK’s dominant services sector, which accounts for nearly three quarters of GDP, showed that growth slowed in August following poor figures from both manufacturing and construction during the same month.

If the UK falls into recession, it would mean that the government would break its own fiscal rules.

Although Mr Javid said on Wednesday that ahead of the Budget later this year he will review its fiscal framework: “To ensure it meets the economic priorities of today not of a decade ago”.

Separately, Bank of England governor Mark Carney said on Wednesday that the worst case hit to the economy of a no-deal Brexit is now “less severe” thanks to preparations made since the end of last year.

In a Treasury Select Committee hearing, Mr Carney said if the UK left the EU with no deal, the economy would shrink by 5.5% rather than the 8% slump it had predicted in November.

Check this out  Bonmarché shares halve after sales slump