UK’s Javid set to boost spending as prospect of election grows

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LONDON (Reuters) – British finance minister Sajid Javid will announce increases in public spending on Wednesday, preparing the ground for a possible snap election call by Prime Minister Boris Johnson who is seeking a way to break resistance to his Brexit plans.

Javid, in his first major speech since taking over the public purse strings in July, will promise more money for what he says are “the people’s priorities” – education, health and the police – after a decade of tight spending controls that has frustrated voters.

Johnson has promised the “most ambitious spending round for more than a decade” although Javid, a former Deutsche Bank managing director, says he will stick to the fiscal rules of his predecessor, at least for Wednesday’s one-year spending plan.

Javid’s spending round speech in parliament, expected around 1200 GMT, will go ahead as planned despite lawmakers opposed to a no-deal Brexit taking control of the legislature’s agenda during the day, government officials said.

Johnson said late on Tuesday that an election would be the only way to resolve the parliamentary impasse over Britain’s departure from the European Union, if lawmakers vote to force him to seek a delay to Brexit.

Javid has a bit of room to increase borrowing to fund his planned spending increases because Britain has cut its budget deficit from almost 10% of gross domestic product in 2010 to just over 1% now.

But he could end up weakening Britain’s budget credibility by making big spending pledges at a time when the economy is at risk of recession and the outcome of Brexit remains so unclear, analysts have warned.

“Making big fiscal announcements in a period of great economic uncertainty means we will have little idea how sustainable or costly decisions made this week will be,” Paul Johnson, director of the Institute for Fiscal Studies, a think-tank, said earlier this week.

The Resolution Foundation, another think tank, said the weak economy, a recent rise in public borrowing and Johnson’s spending promises meant the Treasury was already set to break one of the fiscal rules that Javid has said he will honour – keeping borrowing below 2% of gross domestic product next year.

Promises of tax cuts made by Johnson could mean a bigger breach of the rule, it said.

Another budget rule commits Britain to bring down debt as a share of economic output each year.

Javid has said he will consider changing the fiscal rules to allow for more borrowing when he delivers a longer-term budget statement later this year, probably after the scheduled Oct. 31 Brexit date, when Britain’s economic outlook might be clearer.

Johnson said last week he would boost funding for schools over the next three years by more than 14 billion pounds, reversing an 8% inflation-adjusted fall in spending per pupil over the last 10 years by the 2022/23 financial year.

He has also promised to hire 20,000 extra police officers and upgrade 20 hospitals.

As well as his announcing spending plan on Wednesday, Javid is also due to respond to a call by lawmakers for Britain to stop issuing inflation-linked debt linked to an outdated price measure that give bondholders an annual 1 billion-pound ($1.2 billion) windfall.

Writing by William Schomberg; editing by Stephen Addison

Our Standards:The Thomson Reuters Trust Principles.

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