Brexit ‘spectre of uncertainty’ hanging over economy, warns Hammond
Britain faces higher unemployment and rising prices unless a Brexit deal is agreed to lift the cloud hanging over the economy, Philip Hammond has said.
The Chancellor used his Spring Statement to urge MPs to back a Brexit agreement after the budget watchdog slashed this year’s growth forecast.
The Office for Budget Responsibility predicted economic growth of 1.2% this year – a downgrade from the 1.6% forecast at the Budget in October 2018.
Delivering his statement after MPs emphatically rejected Theresa May’s Brexit deal for a second time on Tuesday night, the Chancellor said the issue was “damaging our standing and reputation in the world”.
He warned: “Leaving with no deal would mean significant disruption in the short and medium-term and a smaller, less prosperous economy in the long-term, than if we leave with a deal.
“Higher unemployment; lower wages; higher prices in the shops. That is not what the British people voted for in June 2016. ”
In his statement Mr Hammond set out plans for:
– £100 million extra this year for police forces in England to pay for overtime aimed at addressing the “epidemic” of knife crime
– a £3 billion affordable homes guarantee scheme, to support delivery of around 30,000 homes
– A “Future Homes Standard” setting out the end of fossil-fuel heating systems in all new houses from 2025
– The provision of free sanitary products in secondary schools and colleges in England from the next school year.
But Mr Hammond warned that economic progress would be put at risk unless MPs took the threat of an imminent no-deal Brexit off the table in the vote on Wednesday evening.
In an impassioned statement he said: “Our economy is fundamentally robust. But the uncertainty that I hoped we would lift last night, still hangs over us.
“We cannot allow that to continue. It is damaging our economy and it is damaging our standing and reputation in the world.”
Mr Hammond, viewed as one of the Cabinet ministers in favour of a softer Brexit deal, said rejecting an immediate no-deal Brexit and extending Article 50 could help find a “deal we can collectively support”.
The OBR forecast growth of 1.2% this year, 1.4% next year and 1.6% in the following three years.
Despite this year’s downgrade Mr Hammond said: “Cumulative growth over the five years is now slightly higher than the Budget forecast.”
The Chancellor said there was “good news” on the public finances, with borrowing forecast to reach £13.5 billion in 2023/24, its lowest level in 22 years.
Debt is forecast to be lower in every year than predicted at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9% and 74% in the following years and 73% in 2023/24.
OBR figures handed Mr Hammond a £11 billion windfall, in what Treasury sources described as an “extraordinary” indication of how well the economy is performing.
Better-than-expected income tax and national insurance revenues, resulting from wages outstripping inflation, mean the Chancellor is on track to meet his targets with a “headroom” of £26.6 billion to spare, rather than the £15.4 billion forecast at the time of the autumn Budget.
Mr Hammond said this cash could go towards Government priorities like public services, capital investment, low taxes and debt reduction, unless it was soaked up responding to a no-deal Brexit.
The Chancellor said he will decide in the Spending Review – which will be launched before the Commons summer recess and concluded alongside the autumn budget – how to share the proceeds from any Brexit “deal dividend”.
Announcing the emergency funding for police forces struggling to cope with violent crime, Mr Hammond acknowledged “action is needed now”.
He said police funding was already due to rise by up to £970 million from April but it would take time to recruit and train extra officers.
Mr Hammond said: “The Prime Minister and I have decided, exceptionally, to make available immediately to police forces in England an additional £100 million over the course of the next year, ring-fenced to pay for additional overtime targeted specifically on knife crime and to fund new Violent Crime Reduction Units to deliver a wider cross-agency response to this epidemic.”
The Chancellor’s announcements were dismissed by shadow chancellor John McDonnell who accused Mr Hammond of “brutal complacency over austerity” and “incompetence over the handling of Brexit”.
Paul Johnson, director of the respected Institute for Fiscal Studies economic think tank, said: “The OBR has revised its growth forecast for this year down to just 1.2%. And despite growth bouncing back from 2020 onwards, the medium-term outlook for the economy remains unusually weak.
“Even so, the Chancellor has had yet more good news on the public finances.”
But he said Mr Hammond had “kept his powder dry” in terms of potential extra spending by waiting for an end to Brexit uncertainty.
The Confederation of British Industry’s chief economist Rain Newton-Smith said: “Against a hugely uncertain political backdrop the Chancellor has made an admirable attempt to set out a long-term vision for the UK economy, yet remains shackled by Brexit.
“This year’s forecast downgrade brings the danger of no deal to the UK economy sharply into view. It must be avoided.”