Brexit

Hammond: Brexit deadlock could jeopardise three-year spending review

Chancellor of the Exchequer Philip Hammond gives evidence to the Treasury Select Committee at the House of Commons Picture: PA

Chancellor Philip Hammond has warned the British government's three-year spending review may be unable to go ahead as planned if there is no resolution to the Brexit deadlock.

Giving evidence to the Commons Treasury Committee, Mr Hammond said the spending review process would have to begin before MPs broke for the summer if it was to be concluded before the end of the year.

But he said it may be "unwise" to go ahead if it was still unclear when the UK would be leaving the EU and on what terms.

"We will keep an open mind as to how the process should unfold as we go through the next few months," he said.

"If we are going to a full three-year spending review we need to formally start the process before the summer recess, carry it on through the summer and bring it to a conclusion around the time of the Autumn Budget.

"My own view at the moment is that if we have not clearly found a solution to the Brexit conundrum and we are on our way to delivering an outcome, it probably would not be appropriate to go ahead with the three-year spending review.

"That is a decision we will consider more carefully and make in final form in coming months.

"It feels to me that making a three-year settlement in a world where we have not yet determined we will be leaving the European Union on a smooth trajectory through a transition period with a deal or whether we will be crashing out without a deal would be an unwise thing to do."

The government has previously promised it would carry out a full spending review in the course of 2019 as part of the process of ending austerity in the public sector.

Mr Hammond told the committee that the uncertainty over Brexit was continuing to hold back business investment.

He said the Bank of England estimated it was 20 per cent below what it would have expected it to be now before the 2016 EU referendum took place.

"It is pretty clear to me that the principal reason is the uncertainty created by the continuing process of working out how we are going to exit from the European Union," he said.

"Clearly, where businesses are able to defer investment decisions until they are clearer about the future, many of them are deciding to do so."

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