U.K. Shelves Austerity in First Spending Plan Since ‘Brexit’ Vote

U.K. Shelves Austerity in First Spending Plan Since ‘Brexit’ Vote

LONDON — After years of tough spending curbs, Britain’s government on Wednesday cast aside the language of austerity as it acknowledged the high economic cost of withdrawal from the European Union, and tried to placate struggling working-class families whose incomes have stagnated.

A pledge by the previous chancellor of the Exchequer, or finance minister, George Osborne, to balance the budget by 2020 has been shelved. The current chancellor, Philip Hammond, is replacing it with a vaguer ambition to do so as soon as practical after 2020.

Help for workers whose low earnings are supplemented by welfare payments, an increase in the minimum wage and new infrastructure spending were features of the first Autumn Statement, or spending plan, from Mr. Hammond, who became chancellor in July.

Changes were centered on a section of society identified by Prime Minister Theresa May as those “just about managing,” also referred to as JAMs, who are thought to have voted in large numbers for British withdrawal from the European Union, or Brexit, in the June 23 referendum.

Mr. Hammond laid out plans to finance construction of 40,000 new affordable homes and to provide more help with child care, though there was also a less welcome increase in the tax on insurance premiums.

And there is a bigger catch. For the JAMs, as for others, the specter of Britain’s withdrawal from the European Union hovers over the economy. The uncertainties complicate life for Mr. Hammond and threaten to hit living standards just as they were beginning to improve for some.

While Brexit has not had the immediate negative effects some economists predicted, Mr. Hammond announced lower growth projections and higher borrowing estimates and inflation forecasts.

  • WHAT IS ‘BREXIT’?

    The decision by British voters to exit the European Union. The formal process for doing so has not begun, as power struggles have consumed both of Britain’s major political parties.

  • WHAT IS THE E.U., AND HOW DOES IT WORK?

    It is an economic and political union of 28 nations,intended to deliver peace, stability and prosperity.

  • The European Council, made up of national leaders, sets the overall political agenda but it cannot pass laws.
  • Laws are proposed by the Council of the European Union — ministers from the member governments — and by the European Commission, the bloc’s executive arm, which has extensive regulatory powers.
  • The laws are approved (or rejected) by the 751-member European Parliament, which is elected directly by European citizens.

“Our task now is to prepare our economy to be resilient as we exit the E.U.,” Mr. Hammond told lawmakers.

One of the cabinet’s steadiest, and most sober, performers, Mr. Hammond is nicknamed Spreadsheet Phil because of his reputation for approaching politics more as an accountant than a visionary.

He was moved from his post as foreign secretary to become chancellor shortly after the June referendum. He, like Mrs. May, had argued against Britain’s withdrawal.

That has made him a target of ideological opponents on the right of the governing Conservative Party, who want to speed British withdrawal, fearing that their goal of a swift, clean break with the European Union will be betrayed.

After Mr. Hammond warned in television interviews of a rocky outlook and an economy with an “eye-wateringly large debt,” supporters of the withdrawal accused him of negativity. On Wednesday, official forecasts suggested that he was correct and that the nation’s debt would rise to more than 90 percent of gross domestic product in 2017-18 from 84.2 percent last year.

Despite the positive economic signs so far, forecasts from the independent Office for Budget Responsibility underscored the high price Britain is likely to pay for Brexit over the next five years.

During that time, potential growth will be 2.4 percentage points lower than would have been the case, Mr. Hammond said. Over the five-year forecasting period, around $75 billion of a total of $150 billion in additional borrowing can be attributed to Brexit.

Driven by the steep fall in the value of the pound, inflation is coming back. “We expect the pound’s fall to add almost 2 percent to the level of consumer prices over the next two years,” said the Office for Budget Responsibility, adding that “real earnings growth will consequently fall close to zero next year.”

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It added that, over all, “the government has opted neither for a large near-term fiscal stimulus nor for more austerity over the medium term.”

Mrs. May plans to invoke withdrawal talks, which are scheduled to last two years, before the end of March, but uncertainty over the future trading environment seems to be chilling inward investment and reducing tax collection.

British businesses have been jittery since the referendum, and there was alarm at Mrs. May’s suggestions in October that she prioritized regaining control of immigration policy over maintaining unfettered access to the bloc’s single market. So Mrs. May’s comments suggested to many that she was aligning herself with those in favor of a clean break.

On Monday, Mrs. May sought to reassure businesses fearing a sudden change in rules once Britain leaves the European Union. She also retreated on suggestions that businesses would be forced to place worker representatives on company boards.

Britain faces some longstanding economic difficulties. According to a research note from three economists at Bank of America Merrill Lynch, those include “woeful productivity performance, the already probably undeliverable austerity that is planned in day-to-day government spending and the large long-term deterioration in the finances that will result if the government delivers on its plan to reduce migration to the tens of thousands.”

Over all, they added, “Brexit means, eventually, higher taxes, lower government spending or permanently higher borrowing.”

While much of Mr. Hammond’s address had been telegraphed in previous days, he did throw one curveball: His first Autumn Statement, he said, would also be his last.

Starting next year, he will move Britain’s annual budget statement from the spring to the autumn, so that taxation changes can be announced well before the start of the tax year, in April. There will be an annual spring statement responding to economic forecasts, but no regular fiscal event, he said.

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