‘Magic money tree’: do Hunt and Johnson’s policies add up?
Chancellor Philip Hammond warns Tory leadership hopefuls to ‘stop and think’ before making more spending pledges
Philip Hammond is urging the two remaining Conservative leadership contenders to “be honest” about their spending promises in their battle to succeed Theresa May as prime minister.
As the BBC reports, both Boris Johnson and Jeremy Hunt have “announced a raft of policies during the contest, including cutting taxes and increasing spending on public services”.
But the chancellor has told the broadcaster that the pair need to “stop and think”, as their policies “greatly exceed” what Treasury can afford to fund.
“Whether it is a leadership competition or a general election, there is always a temptation to get into a bidding war about spending more and cutting taxes,” said Hammond, who has not endorsed either candidate.
“But you can’t do both and, if we’re not careful, all we end up doing is borrowing more, spending more on interest instead of on our schools and our hospitals and our police, and delivering a bigger burden of debt to our children and our grandchildren.”
Hammond later warned that more money would be needed to support the economy if Britain leaves the EU without a withdrawal agreement.
“The ‘fiscal firepower’ we have built up in case of a no-deal Brexit will only be available for extra spending if we leave with an orderly transition,” he tweeted. “If not it will all be needed to plug the hole a no-deal Brexit will make in the public finances.”
So what are Johnson and Hunt’s funding pledges - and is the chancellor right?
Johnson, who remains front runner to become PM, has so far pledged to spend a total of around £25bn of the “fiscal headroom” built up by Hammond.
The would-be PM’s spending plans include raising the thresholds for both higher-rate income tax and National Insurance contributions, bringing school spending up to £5,000 per pupil, funding the training of a further 20,000 police officers, and increasing public sector pay.
Asked how he would pay for his plans, Johnson told reporters that “the money is there ... We also think there is room to make some sensible tax cuts as well, and we will be doing that, too”.
Despite Johnson’s reputation for fanciful hyperbole, Hunt has pledged to spend more than his rival, racking up a total of £29bn worth of promises since starting his campaign.
The Times reports that the foreign secretary’s pledges include reducing corporation tax, raising the National Insurance contributions threshold, reducing interest on student loans, increasing defence spending to 2.5% of GDP, and supporting farmers and fishermen in the event of a no-deal Brexit.
Can the UK afford them?
Both candidates say they will fund their spending from the £26.6bn Brexit war chest set aside by Hammond.
However, concerns are already being raised over the legitimacy of that quoted sum. The Institute for Fiscal Studies (IFS) estimates that an incoming PM could probably spend only about £15bn extra per year while still gradually reducing government debt, The Times reports.
The proposals for higher spending and lower taxes would “amplify the long-run challenges facing the UK public finances”, the IFS warns.
Many commentators are more scathing, with anti-Brexit organisation InFacts.org claiming that “the Tory party’s magic money tree is growing out of control”.
“The money needed for any new prime minister’s spending plans will be swallowed up by a Brexit black hole,” the group’s website says. “We will have less money, not more.”
All the same, it is “not politically surprising” that both Hunt and Johnson “want to signal they would turn on the spending taps a bit after a long, long period of cuts”, says BBC political editor Laura Kuenssberg.
Yet as Former Treasury permanent secretary Lord Macpherson has noted, some of their pledges make shadow chancellor John McDonnell look like “a model of fiscal rectitude,” says The Times.
“And this is from the party that has spent the last four years accusing Jeremy Corbyn of making unfunded spending commitments,” the newspaper adds.