LONDON — U.K. Chancellor Philip Hammond hinted at a major boost in public spending plans within months of leaving the EU if the country can exit with a deal.
Delivering his spring budget statement today, after MPs once again rejected Prime Minister Theresa May’s Brexit deal, Hammond said that if the U.K. could leave the EU with an agreement, it would see “a deal dividend” for the British economy, fueled by renewed business confidence and investment, and the release of financial reserves he has set aside to guard against the risk of an economically disruptive no-deal Brexit.
Hammond, one of the Cabinet’s chief advocates of a close economic relationship with the EU after Brexit, said that to leave with no deal would lead to higher unemployment, lower wages and higher prices for consumers.
“The progress we have made will be at risk if we cannot secure a smooth and orderly exit from the EU,” Hammond said. “Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term … high unemployment, lower wages, higher prices in the shops. That is not what the British people voted for in June 2016.”
He hinted at a stimulus package to shore up the economy in such a scenario, but warned that any “monetary response” would have to be carefully planned to avoid exacerbating inflation caused by a likely devaluing of the pound.
Growth has slowed in recent months, in part because of “heightened uncertainty related to Brexit” — Office for Budget Responsibility
However, if the U.K. were to leave with a deal, Hammond pledged to launch a three-year spending review before the summer, with a focus on funding for the “public’s priorities” including social care, schools and police.
In this scenario, the chancellor said the country would be able to choose how much of the “deal dividend” to spend on public services. He said the government has “headroom” of £26.6 billion above its “fiscal mandate,” which requires the budget deficit to be below 2 percent of GDP by 2020-21, and it’s likely that some of this could be released to fund new spending priorities.
He claimed the spending would mark “an end to austerity” — a totemic pledge that May committed to in her Conservative Party conference speech last year.
He urged MPs to start “building a consensus” for a deal across the House of Commons.
This evening MPs will vote on whether they are prepared to see the U.K. leave the EU without a deal on the current legal date of March 29. If no-deal is rejected, MPs will vote on Thursday on whether they want May to seek an extension of the Article 50 negotiating period, delaying Brexit.
Hammond earmarked Thursday’s vote as the start of the process toward the Commons agreeing “a deal we can collectively support to exit the EU in an orderly way.”
In their economic forecast published alongside Hammond’s statement, the independent Office for Budget Responsibility projected that U.K. GDP would grow 1.2 percent in 2019, with growth settling at around 1.5 percent per year in the medium term. However, the forecast could not take into full account the unknown impact of a potential no-deal Brexit. Growth has slowed in recent months, in part because of “heightened uncertainty related to Brexit,” they said.
Besides Brexit, Hammond used his statement to set out a range of measures to encourage lower carbon emissions and boost biodiversity. He also announced an additional £100 million in funding for police to help combat a recent, widely discussed rise in knife crime in the U.K.
This article has been updated.
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