All spending announcements in Philip Hammond’s Budget will be fully funded, regardless of whether the UK secures a Brexit deal, Downing Street has pledged.
The Chancellor warned at the weekend that his economic plans depend on a successful outcome to the Brexit negotiations with Brussels.
In the event of a no-deal break with the EU, he said he would be forced to tear them up and institute an emergency budget to set the economy on a “new direction”.
But Theresa May’s official spokesman said that the Chancellor was indicating that he was ready to use his “fiscal firepower” to shore up the economy if the UK withdraws without a deal.
The PM’s spokesman said: “What the Chancellor was pointing out in relation to a budget was that if economic circumstances change, he would consider economic interventions. That’s what you would expect any sensible Chancellor to do.”
However, he rejected suggestions that this might mean reversing spending decisions announced in the autumn Budget, expected to include a £2 billion increase in mental health funding and almost £30 billion for roads.
“All of the spending commitments that the Chancellor will set out today are funded irrespective of a deal,” said the PM’s spokesman.
He added: “What the Chancellor said yesterday was that he would use the fiscal reserves that we have built up through hard work and sound economic management to ensure that Britain will succeed whatever the circumstances.
“The Chancellor has spoken on numerous occasions about having maintained what he would describe as ‘fiscal firepower’ which he will be able to use in the event of a no-deal scenario.”
He is expected to respond to Theresa May’s declaration in her Conservative Party conference speech that the era of austerity was finally ending with a cautious loosening of the public spending purse strings.
That prompted renewed accusations from Labour that ministers are preparing to turn Britain into a low tax, low regulation offshore economy along the lines of Singapore.
Mr Hammond insisted that was not the outcome he expected and he remained confident there would be an agreement with Brussels.
The Chancellor goes to the Commons buoyed by an estimated £13 billion windfall due to better-than-expected Government borrowing figures.
It is thought he will announce extra cash for roads – with a £28.8 billion five-year programme of investment in major routes – broadband, social care and the armed forces, as well as help for small retailers.
The additional funding for mental health will be used to pay for the provision of support in every major A&E department, as well as more specialist ambulances and school mental health teams.
Labour – which is calling for a massive increase in spending to reverse what it says is the damage caused by austerity – was sceptical, suggesting some of the money was simply recycling previous announcements.
Many MPs fear that without further support low-paid constituents will be plunged into severe financial difficulties, prompting former prime minister Sir John Major to warn of a voter backlash akin to the poll tax protests which helped bring down Margaret Thatcher.
However the Chancellor was also at pains to stress that major decisions on future spending will not be taken until the spending review next year by which time it is expected the outcome of the Brexit negotiations will be known.
Mr Hammond still also has to fund the promised £20 billion-a-year increase in NHS funding in England over the next five years announced by Mrs May in June.
While the improvement in the public finances has eased some of the pressure for tax increases, it is likely that the Chancellor may still have to find additional revenue from somewhere.
One option could be a raid on the tax reliefs given to pensions savers, although that would be likely to provoke a fierce backlash from Tory MP which the Chancellor and the Prime Minister may be anxious to avoid.