Spring statement: Philip Hammond accused of failing to ease austerity despite £27bn spending boost

Philip Hammond has been accused of failing to ease the pressure on poorer families despite a £27bn windfall that could give him the scope to end austerity.

The chancellor used his Spring Statement to urge MPs to back a Brexit deal to boost the economy, buoyed by better-than-expected income tax and national insurance revenues.

After running the rule over the public finances, the Office for Budget Responsibility (OBR) revised its borrowing forecasts to give Mr Hammond £26.6bn of extra spending power, rather than the £15.4bn forecast in the autumn Budget.

Mr Hammond said this cash could go towards public services, capital investment, low taxes and debt reduction, unless it was soaked up responding to a no-deal Brexit.

But the Resolution Foundation think tank argued that Mr Hammond now has the fiscal firepower to end austerity later this year rather than allowing it to continue for low and middle-income households.

Director Torsten Bell said: “In a speech light on policy, the chancellor used a £30bn windfall from the OBR to promise sunny uplands if parliament delivers a smooth Brexit in the months ahead.

“The chancellor’s £26bn of fiscal firepower is more than enough to bring austerity to an end in the Spending Review later this year.

“This marks a major shift as the debate in British politics moves to focusing on how much more we should spend, rather than how deeply to cut.

“But despite an improvement to the public finances driven in part by particularly fast earnings growth for high earners, austerity will continue for just about managing families, who face a £1.8bn hit from the benefit freeze in just three weeks’ time.”

The think tank said the final year of the freeze on working-age benefits, which takes effect next month, will leave a low-income couple with children £200 worse off next year, rising to £580 once the full effect of the freeze is included.

Overall tax and benefit changes being introduced in April will take £100 from families in the bottom fifth of the income distribution and give £280 to those in the top 10 per cent, it added.

Mr Hammond told the Commons the four-year freeze on increasing benefits payments was “one of the very many difficult decisions we have had to take”, but it will end next year.

He said: “We’ve made it very clear we have no intention of repeating the current freeze. When it is over, increases in benefits will resume in line with CPI in the normal way.”

But his comments were seized on by campaign groups, who condemned the government for not ending the freeze early.

Campbell Robb, chief executive of the Joseph Rowntree Foundation, said: “The government should have shown today that it is serious about tackling the rising tide of poverty in the UK.

“Instead they chose not to end the freeze on benefits, leaving families in poverty to face rising costs and bear all the risks of economic uncertainty, especially if we leave the EU without a deal.”

Child Poverty Action Group chief executive Alison Garnham said: “The chancellor could have sent a lifeline to low-income families.

“That he didn’t is evidence of ministers’ refusal to confront the reality that families have been left with too little money to live on after three long years of stagnant incomes and rising prices.

“As a country we want all families to prosper but the freeze has left low earners and those who can’t work out in the cold.

“Child poverty rates risk reaching a record high by the end of this parliament with 200,000 children tipped into poverty as a result of the freeze on children’s benefits alone.”

The Treasury watchdog cast doubt on the £27bn windfall, as changes to the way student loans are recorded could increase the deficit by £12bn – absorbing almost half of the chancellor’s headroom.

OBR chairman Robert Chote told a briefing that the chancellor had ”reasonably large room for manoeuvre” but he would have to decide whether to meet his commitment to balance the books by the mid 2020s or turn on the spending taps.

He also warned that the forecasts were based on the UK leaving the EU on March 29 with a deal.

“Brexit is a process, not an event,” he said. “There are still an awful lot of decisions that will have to be taken by the government in the UK and in other countries. So, there will still be Brexit-related uncertainty.”