Less than a year has passed since Theresa May danced on stage at the Tory party conference and told party activists that the era of austerity was officially over.
The announcement was not received well by the Treasury at the time, where Philip Hammond was still trying to eliminate the government’s annual deficit.
To give credit to the former chancellor, Hammond was just about able to tread the line between targeted budget hikes for areas such as the NHS and a determination to consolidate the public finances.
Brexit has done funny things to the UK’s political map, however, and Hammond now finds himself ousted from both the government and the party.
His successor, once a deficit hawk who proposed bringing a debt ceiling into law, yesterday unveiled a huge £13.8bn increase in spending for the next financial year while suggesting the government’s fiscal rules would be relaxed. The fiscal framework should “meet the economic priorities of today not of a decade ago,” Sajid Javid said, portentously.
Javid’s spending spree, the most profligate in 15 years, will see budget hikes across Whitehall – not a single department will experience a real-terms cut, the chancellor boasted.
The Institute for Fiscal Studies (IFS) said the spending round will reverse two-thirds of the day-to-day Whitehall budget reductions achieved since 2010. His announcement was classic election fare, but reminds us of the dangers of playing politics with the public purse.
Yesterday’s splurge “is a risky move for the chancellor,” the IFS wonks concluded. Javid was able to stay narrowly within the Treasury’s rules only because the Office for Budget Responsibility was not given the opportunity to update its growth outlook (scheduled for publication alongside the next Budget).
The global economic environment is bleak, with the UK possibly in recession, and it is unlikely to support Javid’s plans.
Despite strong progress in recent years, the Conservatives have still not eliminated the deficit, with borrowing coming in above £23bn last year.
Read more: Boris Johnson’s first PMQs: Our verdict
Moreover, it is on the rise. An excellent note from Investec’s Philip Shaw calculated that borrowing will rebound to £42bn in 2019-20 if the current trend continues.
It would be a great shame if the Tories let go of the purse strings just as they were about to achieve the fiscal ambition on which they stood during each of the last three general elections.
Main image credit: Getty