Philip Hammond: UK will have to pay EU '˜divorce settlement'

Chancellor Philip Hammond delivers a budget speech this week

The Chancellor ruled out significant giveaways in his budget speech this week despite hopes that better-than-expected economic growth could spur investment, instead setting out plans to put aside a contingency fund of up to £60 billion over the next three years.

Mr Hammond said he would ensure that the Treasury would hold off on significant spending before leaving the EU in 2019 until he is “confident that we have got enough gas in the tank to see us through that journey”.

Appearing on the Andrew Marr show yesterday, he said the UK would not “slink off like a wounded animal” but would “fight back” if ministers don’t get the Brexit terms they want when talks begtin next month.

“British people have a great fighting spirit and we will fight back,” he said. “We will forge new trade deals around the world. We will build our business globally.

“We will go on from strength to strength and we will do whatever we need to do to make the British economy competitive and to make sure that this country has a great and successful future.”

The Chancellor has previously threatened to slash business taxes to undercut European economies and draw investment away from the continent if the UK isn’t offered a comprehensive trade deal with the EU.

Following reports that ministers had legal advice suggesting the government could avoid payments towards the EU budget if it walked away from Brexit talks without a deal, Mr Hammond said the UK would “abide by its international commitments”.

However, he said speculation about the scale of the UK’s bill was “a piece of negotiating strategy that we are seeing in Brussels.”

The European Commission is believed to be seeking up to €60 billion in agreed budget contributions covering EU spending up to 2020, as well as pension payments for European officials. Conservative estimates put the UK’s liabilities at around €15 billion.

“We are a nation that honours its obligations and if we do have any bills that fall to be paid we will obviously deal with them in the proper way,” Mr Hammond said.

Wednesday’s budget will include investment in reformed vocational education for England worth £500 million, and the Treasury today unveiled another £270 million for university research that will boost productivity in key sectors of the economy.

Up to £1.3 billion is also expected to be given to local government in England to address growing concerns of a crisis in social care provision.

Higher than expected economic growth of 2% this year is expected to yield increased tax receipts and give the Chancellor a £60 billion cushion.

But in a newspaper article yesterday, the Chancellor said it would be “reckless, unsustainable and unfair on our young people” to borrow in order to fund more investment.

Mr Hammond said he would instead seek “flexibility” in dealing with the UK’s deficit “to ensure our economic resilience” as Brexit takes hold.

Labour published analysis showing that incomes are set to rise by just over half as much by 2020 as expected this time last year, thanks to the impact of Brexit, with earners losing an average of £1,100 a year as a result.

Shadow Chancellor John McDonnell said at least £2 billion had to be plowed into social care, with further investment in the health service.

“We believe that the Government now have put aside, as is reported, £60bn – increased tax receipts in January have contributed to this as well – for a crisis in case of Brexit,” he told the Marr show.

“The crisis is here now. We should prepare for Brexit but some of that money now needs to deal with the crisis in the NHS and social care.”

SNP economy spokesman Stewart Hosie MP called on the Chancellor to set out how the Brexit buffer would be used to replace European funding for universities and agriculture.

“The circumstances of this year’s budget may be very different from previous years but what Philip Hammond will confirm with his Brexit bombshell budget is that this Tory government remains wedded to austerity and is responsible for the largest increase in inequality since Thatcher according to the Resolution Foundation,” Mr Hosie claimed.

“Instead of ferreting away a £60 billion ‘war chest’ to deal with the effects of crashing out of the single market, this budget needs to be ambitious in introducing measures to boost economic growth, it needs to protect households from further damaging austerity, and it must mitigate the impact of leaving the EU.”

Liberal Democrat leader Tim Farron said the Chancellor’s comments confirmed that Brexit would “send a torpedo through Britain’s finances”.

“It is clear you can’t have a strong economy and strong public services with a hard-Brexit,” he said.

“It is ridiculous to see the Chancellor trying to fritter away money this week, at the same time as the Prime Minister continues to drag Britain towards a hard-Brexit.”