There’s light at end of the austerity tunnel, says Philip Hammond

Philip Hammond has claimed that bullish signs from the economy mean that he should soon be able to ‘turn on the spending taps’ to counter the political threat from Jeremy Corbyn.

The Chancellor, who will deliver his first Spring Statement on Tuesday, declared that there was ‘light at the end of the tunnel’ after nearly a decade of austerity – raising the prospect that he will soon be releasing more money for the public services.

Mr Hammond has been under intense pressure from Downing Street to release more money for the NHS, students and key workers after being alarmed by the ease with which Mr Corbyn has picked up votes by promising to plough billions of pounds into public pay rises and welfare payments.

The 25-minute statement – the first since the Budget was moved from Spring to the autumn last year – will not contain any tax changes or spending announcements.

But it will allow the Chancellor to respond to new forecasts from the Office for Budget Responsibility (OBR) and launch consultations on issues such as VAT reform.

A Government source said that, although the Treasury had not yet seen the OBR’s projections, they were confident that the ‘direction of travel for our growth prospects’ means that ‘we should soon be in a position to turn on the spending taps a bit more’. The Treasury is expecting to have about £10 billion more to spend than previously thought due to an increase in tax revenues.

The ‘light at the end of the tunnel’ declaration follows months of wranglings between No 10 and the Treasury over how to counter the ‘Corbyn surge’ without surrendering the Conservatives’ hard-won reputation for fiscal rectitude. It burst into the open when Mrs May’s former chief of staff Nick Timothy, who remains an influence inside No 10, used a newspaper article earlier this year to attack Mr Hammond for his cautious economic stewardship.

Mr Timothy warned the Chancellor that the public was ‘tired of austerity’ and schools and the NHS needed an urgent injection of resources.

Want to pull in even more tax, Chancellor? Then why not put the squeeze on Caffe Zero? 

Mr Hammond will come under pressure to take tougher action against tax-avoiding international businesses, as The Mail on Sunday reveals today that Caffè Nero has not paid a penny in UK corporation tax for a decade – despite sales of £2 billion.

The company that controls Caffè Nero’s stores in the UK and Ireland posted sales of £288 million last year. Founder Gerry Ford, a Californian private equity baron, claims the group’s vast bank debt means profits are wiped out, so it is not liable to pay corporation tax. But one critic called Caffè Nero’s accounting practices ‘parasitic’.

Rival Starbucks has also come under fire over its tax affairs.

 

However, some Treasury officials remain concerned about the prospects for the economy, fearful that the uncertainty caused by the Brexit vote has yet to take full effect.

The statement comes as Ministers are close to finalising an NHS pay deal that will give more than a million staff their first substantial pay rise since 2010. Nurses, midwives, ambulance staff and healthcare assistants will all benefit.

Mr Hammond said last night that his strategy was intended to take ‘a balanced approach of dealing with our debt while investing in Britain’s future, which has meant we can spend more on public services’. He added: ‘We are at a turning point. Over the last two quarters we have seen the first signs that productivity growth – the key to higher wages – may be increasing and this year we are forecast to see the beginning of the first sustained fall in debt for a generation. It has been a long road – and there is still work to be done – but I am confident that there is light at the end of the tunnel.’

But Shadow Chancellor John McDonnell, addressing Labour’s Scottish conference, pledged that a Corbyn Government would ‘fundamentally change the whole economic basis of our society’. He said: ‘Our goal is about shifting power from those who own the wealth in this country back to those who, through their hard work and endeavour, create the wealth.’ 

• Mr Hammond will also use Tuesday’s statement to give the public a say on how to reduce single-use plastics.