Philip Hammond has warned he will not relax his grip on the public finances, despite seeing “light at the end of the tunnel” for the economy after years of austerity.
Speaking ahead of the Spring Statement, the Chancellor said Britain’s debt mountain was still too high and had to be brought down.
“There is light at the end of the tunnel because what we are about to see is debt starting to fall after it has been growing for 17 continuous years. That is a very important moment for us but we are still in the tunnel at the moment,” he told BBC1’s The Andrew Marr Show.
“We have a debt of £1.8 trillion – 86.5% of our GDP. All the international organisations recognise that is higher than the safe level.
“This isn’t some ideological issue. It is about making sure that we have the capacity to make sure that we can respond to any future shock to the economy.
“There will be economic cycles in the future. We need to be able to respond to them without taking our debt over 100% of GDP.”
Economists expect Mr Hammond will announce Government borrowing is set to be around £7 billion lower in 2017-18 than had been predicted when he unveils the latest forecasts of the Office for Budget Responsibility on Tuesday.
The Chancellor, however, made clear that he would not be making any changes to spending in his statement, and said he would continue to take a “balanced” approach to public finances, if there was any further room for manoeuvre.
“What I will be doing is signalling some areas where we want to consult ahead of the Budget in the autumn,” he said.
“We should be very careful about looking at single sets of figures – one quarter or two quarters. We need to look at what is happening sustainably in the economy.
“If there is the flexibility, the space to do something, we will decide in the autumn how we are going to use that but we will continue to take a balanced approach, addressing the debt problem, reducing taxes for hard working families and putting money into our public services.
“It is wrong to say that every penny of capacity has to go paying down the debt but it is equally wrong that every penny should go into additional public spending. We need a balanced approach.”
For Labour, shadow chancellor John McDonnell said the Government’s approach was not working and they needed to change direction.
“Austerity is holding growth back. Wages are below what they were in 2007-08 so this isn’t a matter for celebration,” he told The Andrew Marr Show.
“What he (Mr Hammond) has done, very cleverly, very cunningly, he has shifted the debt onto the shoulders of NHS managers, onto the shoulders of head teachers and onto the shoulders of local government leaders.”
The Chancellor is due to deliver the Spring Statement on Tuesday.