LONDON, March 13 (Reuters) - British finance minister Philip Hammond said on Wednesday he could free billions of pounds for extra public spending or tax cuts if parliament resolves its Brexit impasse.
Hammond told lawmakers he would be able to relax his grip on the public finances if they spared Britain the shock of leaving the world’s biggest trading bloc without an agreement.
But he warned that the progress Britain has made on cutting its borrowing would be at risk without an orderly exit from the European Union with a transition period.
“I hoped we would do that last night, but I am confident that we, as a House, will do it over the coming weeks.”
On Tuesday, parliament rejected Prime Minister Theresa May’s proposed Brexit plan for a second time, little more than two weeks before the scheduled date of departure from the EU.
“Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term, than if we leave with a deal,” Hammond said in his speech to parliament.
“Higher unemployment, lower wages, higher prices in the shops. That is not what the British people voted for in June 2016.”
Lawmakers were expected to vote later on Wednesday against a no-deal Brexit and then vote on Thursday in favour of the government seeking a delay to Britain’s departure, currently scheduled for March 29.
New half-yearly fiscal forecasts showed that Britain’s public finances, at least in the short term, were in better shape than in October, when Hammond gave an annual budget statement, despite a weaker outlook for the country’s economy.
Hammond said he now had 26.6 billion pounds of fiscal “headroom” that he has earmarked as a potential war chest for helping Britain’s economy — for example, via extra spending or tax cuts — up from a previous estimate of 15.4 billion pounds.
In his full budget statement in October, Hammond also held out the prospect of higher spending or tax cuts if parliament backed the government’s Brexit plan. Britain’s parliament rejected that plan in January and again on Tuesday.
Hammond announced official forecasts showing growth would be weaker this year than expected in October, but Britain’s budget deficit would be smaller.
The forecasts were produced by the Office for Budget Responsibility, Britain’s budget watchdog and assumed that Britain would leave the EU with a deal. (Reporting by Andy Bruce, Elisabeth O’Leary, William Schomberg and Paul Sandle; editing by Larry King )