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Theresa May Concessions Will Leave a £4 Billion Annual Hole in the Public Finances

Theresa May Concessions Will Leave a £4 Billion Annual Hole in the Public Finances

The deals that Theresa May has arranged to secure her position following the loss of her majority will carry a £4 billion price tag. Mrs. May’s deal with Northern Ireland’s Democratic Unionist Party, her U-turn on several manifesto promises and suggestions she will end public austerity, are set to amass a significant bill. This will undoubtedly further strain her relations with Phillip Hammond, the chancellor, as these developments have severely constrained his room for manoeuvre in his autumn Budget.

The largest bill facing the government is likely to arise from pressure, both from the public and within the Conservative government, to end the 1 per cent pay cap on public sector workers. Indeed, one Tory MP told the Financial Times, “It’s obvious. Unless they end the pay cap, they won’t get the Budget through.” As the Conservatives can only achieve a narrow majority with the support of the DUP, Mr Hammond’s Budget is vulnerable to being voted down if a mere seven Tory MPs refuse to back it.

The Queen’s Speech, approved this week, abandoned plans to raise approximately £1 billion from ending universal winter fuel payments as well as a further £600 million by ending universal free school meals for infants. Furthermore, the price of securing DUP support for the Queen’s Speech was £1 billion. Consequently, numerous commentators believe that Mr. Hammond will have to raise taxes to fund new spending commitments.

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