Budget: chancellor hints at looser purse strings for NHS and broadband | UK news

Rishi Sunak, the chancellor, is expected to ease constraints on spending and borrowing in this week’s budget, as he sets out plans to help the economy withstand the impact of coronavirus.

Presenting his first budget on Wednesday, the new chancellor will make announcements including the confirmation of £5bn investment in faster broadband across the country — a policy from the Conservative manifesto.

Sunak, who is just a few weeks into the job, will also set out measures to help businesses survive the impact of coronavirus, such as delayed payments and bridging financing. He has promised to give the NHS “whatever it needs” to cope with the outbreak.

He is likely to deliver a much less radical budget than first planned as the government accepts the need for caution in the wake of the unfolding infection crisis. However, senior Tories are expecting Sunak at the least to announce a review of the government’s spending rules, or to find a way of making them easier to meet.

The rules, announced by his predecessor Sajid Javid at the election, commit the government to balancing the books on day-to-day spending by the middle of the parliament, and pledge that borrowing for infrastructure will not exceed 3% of GDP.

Sunak repeatedly refused to confirm that the rules would remain in place when pressed on his plans in interviews on Sunday. He suggested he could use a review to re-evaluate what is classed as investment spending. Even if the rules remain in place for now, they could be made easier to meet by changing the definition of investment spending to include more types of day-to-day spending, such as parts of spending on health, education and policing.

Pressed on the BBC’s The Andrew Marr Show on whether he would ditch Javid’s fiscal rules, he said: “I believe very much in the importance of fiscal responsibility, about responsible management of our public finances.

“And as I’ve made the point before, it’s because there’s been very strong management of public finances over the last 10 years by successive Conservative chancellors who have made some difficult decisions that means I can sit here today and say I will invest what it takes to get us through this, because our public finances are in a good spot,” he said.

No 10 is known to be keener than Javid was to loosen the public purse strings for spending in order to carry out its post-Brexit agenda. Sunak is much closer to Johnson’s team than Javid, who resigned as chancellor when the prime minister asked him to sack his advisers.

Tory MPs believe that most tax-raising measures floated by the government, such as a mansion tax, cutting pensions relief on higher earners and an imminent hike to fuel duty, have been dropped in recent weeks.

But the chancellor may opt to risk the ire of Tory colleagues by abolishing entrepreneurs’ relief, saving an estimated £2.6bn.

Key policies that are likely to be included are:

  • £5bn investment to roll out faster broadband across the UK by 2025 and a £1bn deal to boost 4G coverage, especially benefiting Scotland, Northern Ireland and Wales;

  • an increase in the National Insurance threshold, as promised in the Conservative manifesto;

  • a doubling of spending on flood defence schemes to £5bn, in light of the devastating floods in recent months;

  • plans to move some of the Treasury to a new northern base, with a fifth of the workforce eventually situated there.

On Sunday, the shadow chancellor, John McDonnell, warned that the likely amount of extra spending was “nowhere near the scale we need” to help the NHS, climate change and crisis in public services, as he branded Wednesday’s event “the most important budget since the second world war”.

It has already emerged that the national infrastructure strategy to invest £100bn in boosting the economy and tackling the climate crisis is expected to be delayed. The plan to improve transport connectivity and work towards achieving net-zero emissions by 2050 had been set to be published “alongside” the budget.

Economists have warned that Sunak will have little room for manoeuvre within his current fiscal rules without resorting to tax rises, much higher borrowing or more austerity. The Institute for Fiscal Studies said the government was on track to ramp up borrowing to about £63bn next year – £23bn more than the most recent official forecasts – amid a rapid increase in spending.

The IFS predicted that the Tories would probably break their election pledge to balance day-to-day spending with tax income by the middle of the current parliament if it continued on its current course. “It is not clear that the manifesto pledge to target current budget balance three years out would be met even under current policy,” the thinktank said.

Howard Archer, chief economic adviser to the EY ITEM Club, said on Sunday: “The chancellor may choose to flex the UK’s fiscal rules to provide more headroom to spend, but his flexibility on current spending seems limited and he will have to work carefully to maximise the benefits of the money he has at his disposal.”

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