Philip Hammond’s aim of wiping out the deficit and balancing the books has ‘no credibility’, MPs warn

MPs said the chancellor ‘appears to have disregarded the fiscal objective of achieving a surplus’

Caitlin Morrison@citycait
Tuesday 12 February 2019 09:24
Budget 2018: Philip Hammond says 'era of austerity is finally coming to an end'

The chancellor’s target of reducing the budget deficit and balancing the books has “no credibility” and should be abandoned, MPs have said.

The Treasury Committee also said Philip Hammond’s claim in last year’s Budget that the UK would benefit from a “deal dividend” if a Brexit agreement was reached with Brussels was not credible.

Mr Hammond said the UK would receive a “boost from the end of uncertainty, and a boost from releasing some of the fiscal headroom that I am holding in reserve at the moment” if a no-deal Brexit was avoided, but the Office for Budget Responsibility said that as it already assumed an orderly Brexit in its forecasts, it was “odd” for the challencor to refer to a deal dividend.

Nicky Morgan MP, chair of the Treasury Committee, said: “The great cloud of uncertainty hanging over Budget 2018 was Brexit. And as the chancellor has said, a new Budget may be needed in the event of no deal. But the Treasury Committee has nevertheless scrutinised this budget and made a series of recommendations to government.

“On Brexit, the chancellor spoke of a ‘deal dividend’ of lower taxes and higher spending once a withdrawal agreement has been agreed. The OBR already assumes an orderly Brexit, so there won’t be a ‘deal dividend’ beyond the forecast just by avoiding no deal. Business confidence may improve with increased certainty, but it’s not credible to describe this as a dividend.

“It’s clear that the government should update its charter for budget responsibility. The chancellor appears to have disregarded the fiscal objective of achieving a surplus and says that he prefers securing economic growth as a better way of shrinking the debt as a proportion of GDP. As the objective now has no credibility, parliament cannot use it to hold government to account, and it should be replaced.”

Meanwhile, the committee said Mr Hammond’s claim that austerity is coming to an end was inaccurate.

The chancellor said he viewed “austerity coming to an end” as meaning “more generous funding of public services, real wage growth and a lower proportion of income going into taxation”.

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This definition, the MPs said, was “expansive but also imprecise”, and the committee called on Mr Hammond to “set out his meaning in more measurable terms” at the next Budget and comprehensive spending review.

A Treasury spokesman said: “Restoring the public finances to health is a result of good economic management, not luck.

“Debt is now falling on a sustained basis for the first time in a generation, wages are growing at their fastest rate in over a decade, and [Monday’s] GDP data confirmed that the UK economy grew for a ninth consecutive year.”

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