Chancellor Philip Hammond plans to use “headroom” in the public finances to target spending on housing and health, a close friend has told the BBC.

Stephen Hammond – a former transport minister – said the chancellor wants to use next Wednesday’s Budget to “attack problems” that contributed to the Tories’ poor election performance.

The chancellor said in March he had “headroom” – available cash – of £26bn.

Labour says he needs to tackle what it calls the squeeze in living standards.

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The chancellor will lay out the government’s financial plans on 22 November.

The £26bn was dubbed a “war chest” – designed to help him navigate the economy through Brexit.

‘About to turn a corner’

Stephen Hammond, who has known the chancellor for more than 20 years, told BBC Two’s Newsnight that the chancellor was planning to use the Budget to reach out to voters who had abandoned the Tories.

The party lost its overall parliamentary majority in June’s election, with voters in every age group up to late 40s preferring Labour. Housing was cited as a key concern by younger voters.

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Stephen Hammond told Newsnight: “I think what the chancellor will be doing is saying ‘look it would be silly to throw away all the good work we’ve done in getting down the deficit level, we’re about to turn the corner on debt….and when you look at what I did in my autumn statement I created some headroom…. and I will be looking at what are the ways that headroom could be used to attack the problems that so many people have spoken to me about’.”

The former transport minister predicted a strong focus on housing in the Budget.

“I am absolutely convinced that he’ll be looking at some housing ideas.

“And there are some really creative ones about looking at loan guarantees for small builders and things in that sort of area. But also he knows that we need to build more social housing and affordable housing. I think he’ll be looking at ways he can encourage that.”