Hammond says UK budget is constrained by high debt

Britain’s first budget plan since the Brexit vote will not include a big new spending push because of “eye-wateringly” high public debt levels, but will have some help for the economy and struggling families, the UK’s chancellor of the exchequer has said.

Philip Hammond, who will spell out the economic priorities of the new government on Wednesday, said on Sunday he wanted to keep some fiscal "head-room" as two years of negotiations about leaving the EU approach.

“Over the next couple of years we are going to face some uncertainty over the economy,” he said in an interview with BBC television. “But then we will have a whole raft of opportunities, and we need to get the country ready to be able to seize those.”

Britain's economy has so far defied forecasts of an immediate Brexit recession made by Mr Hammond's predecessor George Osborne, reducing the urgency for a major fiscal stimulus. However, most economists expect a sharp slowdown next year, pushing up unemployment at a time when inflation is likely to rise sharply, further squeezing many households.

Hammond is expected to announce measures to help struggling families such as targeted tax cuts when he delivers the half-yearly Autumn Statement budget update in parliament.

Cut to VAT

“We’ve got to make sure that the prosperity that comes from seizing opportunities ahead is shared across the country and across the income distribution,” he told the BBC.

Two British newspapers said Mr Hammond was considering a temporary cut to VAT which would help poorer families most but would be costly to the public finances.

However, with public debt of £1.6 trillion, equivalent to 84 per cent of economic output last year, its highest level in nearly 50 years, Mr Hammond said the government was “highly constrained”.

Earlier on Sunday the treasury announced £1.3 billion (€1.5bn) in new spending on roads as part of plans to increase Britain’s weak productivity growth.

Prime minister Theresa May is expected to speak on Monday about plans her ministers are drawing up for a new industrial strategy. – Reuters