Sajid Javid’s spending plans raise eyebrows at think tanks and business bodies

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Sajid Javid’s spending plans raise eyebrows at think tanks and business bodies
LONDON, ENGLAND - SEPTEMBER 4: Chancellor of the Exchequer Sajid Javid, leaves 11 Downing Street on September 4, 2019 in London, England. Last night the Rebel Alliance, including 21 Conservative MPs, won a vote that allows them to take charge of the Parliament order paper today, allowing them to debate a bill to block a no deal Brexit. The Prime Minister has withdrawn the whip from the 21 rebels and they face de-selection at the next General Election. (Photo by Leon Neal/Getty Images)

Chancellor Sajid Javid today announced he would “turn the page on austerity” with the biggest increase in government spending for 15 years.

Read more: Sajid Javid proclaims the ‘end of austerity’ in spending round

In his first major announcement after taking the helm of the UK economy, Javid turned his back on the approach of his two predecessors and pledged to raise day-to-day spending by 4.1 per cent above inflation next year.

Javid pledged more money for schools, hospitals and local government, but think tanks questioned whether his plans breached spending rules and businesses said Brexit should be the top priority.

Institute for Fiscal Studies (IFS) director Paul Johnson said the extra spending means Javid is at risk of “missing his current fiscal targets come the Budget later this year– even with a smooth departure from the European Union”.

Rules created by former chancellor Philip Hammond say the government must keep borrowing below two per cent and bring down debt as a share of GDP each year. 

The IFS said the extra borrowing could “just” be within the rules if the government uses the spring economic forecasts from the Office for Budget Responsibility, but said the outlook has likely since deteriorated.

The Resolution Foundation think tank also said Javid’s pledges were “not likely to be consistent with the government’s fiscal rules”. 

Yet it said higher borrowing “is perfectly possible given record low borrowing costs, and with the deficit at its lowest level in 17 years”.

The free-market Institute for Economic Affairs took a dimmer view, however. Its director general Mark Littlewood said “turning on the taps” risks “undermining the good work done in recent years to almost eradicate the budget deficit”.

“If the public finances are in a much improved state, tax cuts should be at least as high a priority as any spending increases.”

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: “Despite the big headline figures this spending review was limited in scope and detail, highlighting that the ongoing Brexit impasse continues to frustrate much-needed Westminster action on the domestic business environment.”

Read more: BoE’s Mark Carney says UK now better prepared for no-deal Brexit

“The immediate focus should be on avoiding a messy and disorderly Brexit,” he said, but added that “bold measures are needed to boost business confidence and stimulate growth”.

(Image credit: Getty)