Former Chancellor Philip Hammond has warned the government to resist ‘extravagant’ spending proposals in next week’s budget and instead focus on cutting the national debt.
Lord Hammond added that the public needed some difficult ‘home truths’ over the impact of the coronavirus pandemic on the UK economy with record borrowing seeing the national debt top £2 trillion for the first time.
In an interview with BBC political editor Laura Kuenssberg, he acknowledged that giving money away was easier than collecting it for a ‘populist government’.
However, he warned that the economy had taken a ‘huge hit’ and that there would be ‘scarring’ in several sectors with the former Chancellor urging the government to ditch ‘very extravagant’ manifesto promises and reign back spending.
He said: ‘My fear is that, as a populist government, giving money away is always easier than collecting it in.
‘And the government will be tempted not to move quickly back to normalising the relationship between government and citizen, the balance between taxing and spending as we move out of the crisis and into the next phase, which is dealing over the longer term with the legacy of this Covid crisis – what the economists called the scarring effect on the British economy.’
It comes as it was revealed that Rishi Sunak will use a giveaway budget next week to pave the way for a post-lockdown boom.
Former Chancellor Philip Hammond says the government needs to resist ‘extravagant’ spending to cut down on national debt
Rishi Sunak will use a giveaway budget next week to pave the way for a post-lockdown boom
Help for motorists, hospitality firms and the housing market is expected to be among a string of eye-catching policies.
The Chancellor is set to shelve plans for tax rises, including a threatened 5p increase in fuel duty that would have hit millions of drivers.
He is also poised to announce further VAT and business rate cuts for the hospitality and tourist industries, continue the stamp duty holiday and extend the jobs furlough scheme.
Commenting on the budget, Lord Hammond said the economy had taken a ‘huge hit’ from Covid-19, but should ‘bounce back’.
The economy contracted by 9.9 per cent in 2020 and, on Tuesday, it was revealed that unemployment had risen to 5.1 per cent.
Meanwhile, record borrowing has seen the national debt top £2trillion for the first time.
Despite this, Rishi Sunak is expected to rule out tax rises and instead bring in several new measures to support Britons as restrictions start to ease.
Lord Hammond said it was unlikely in the ‘foreseeable future’ that ministers would be able to reduce national debt.
He added: ‘If we can grow the British economy over the coming years, then just as we did after the Second World War, we can make the debt fade in significance, because, although it stays the same in absolute terms, it becomes a much smaller percentage of our national economy.’
Help for motorists, hospitality firms and the housing market is expected to be among a string of eye-catching policies
He praised Mr Sunak’s response to the pandemic so far but added that he was ‘not sure’ the government had the ‘appetite for being unpopular, in order to do the right thing’.
Lord Hammond was appointed to the Lords by Boris Johnson despite being stripped of the Tory whip as an MP in 2019 for joining with those attempting to block a no-deal Brexit.
His warning came two days after Labour claimed Chancellor Rishi Sunak’s ‘economically illiterate’ plans risk ‘crushing’ Britain’s pandemic recovery under a ‘mountain of debt’.
Shadow Treasury minister Bridget Phillipson warned that some firms face having to start paying back Covid loans before lockdown restrictions are fully lifted, putting them at risk of going bust.
The Government, meanwhile, has flagged that Mr Sunak may not need to raise taxes to reduce the budget deficit built up by the pandemic.
Financial Secretary to the Treasury Jesse Norman told MPs last month that any post-Covid recovery could be strong enough to avoid tax rises.
Lord Hammond, in his maiden speech last month, called on Whitehall to give ‘greater focus’ to the financial services industry in its post-Brexit talks with the EU.
In his budget, Mr Sunak will issue a warning that soaring debt could put the UK at the mercy of interest rate rises in the long term. And he is expected to signal a rise in corporation tax from 19 per cent to at least 23 per cent before the next election.
Conservative MPs believe he will also suggest that the fuel duty freeze will end later this parliament.
Much of the budget is expected to focus on schemes to create jobs and help retrain those left out of work by the series of lockdowns.
Treasury officials fear unemployment will continue rising until the summer, despite the continuation of the furlough scheme.
One insider added: ‘At the moment, the debate is all about jabs, but by the summer it will be about jobs – we need to be ready for that.’
Mr Sunak is expected to unveil billions more in investment to help kickstart a recovery from the worst recession since the Second World War.
Treasury chief secretary Steve Barclay last night revealed that a £4billion ‘levelling-up’ fund for infrastructure projects will be extended to Scotland and Wales with an additional £800million in funds.
However, in a move that led to SNP accusations of a ‘naked power grab’, Mr Barclay confirmed that funding allocations will be controlled by central government.
Sir Keir Starmer indicated that Labour would oppose any rise in corporation tax. The Labour leader, who stood on a 2019 manifesto to raise corporation tax to 26 per cent, told MPs it was ‘not the time for tax rises for families and for businesses’.