Budget: Austerity not over for most public services, warns think tank

Departments other than health facing day-to-day spending almost one-fifth below 2010 levels to the middle of this decade, says Institute for Fiscal Studies

Austerity is not over for most public services, which will see day-to-day spending per person remain almost a fifth lower than 2010 levels to the middle of this decade, a respected think tank has warned in its judgement on Rishi Sunak’s Budget.

Despite setting public spending on track to consume 41 per cent of national income by 2023 – its highest level since the mid-1980s – Mr Sunak’s plans are “nothing like as generous as they appear” for most Whitehall departments, said the Institute for Fiscal Studies.

And the £76bn rise in overall spending by 2023-24 will be paid for largely by borrowing, paving the way for soaring debt and probably tax rises – particularly if the economy takes a significant hit from coronavirus or a disorderly Brexit.

In stark contrast to the chancellor’s claims that the UK economy is well placed to weather the coronavirus storm, the IFS branded expected growth rates for the coming five years “feeble”.

Forecasts from the independent Office for Budget Responsibility showed an economy which was “not in a robust position for coping with shocks like the coronavirus”, warned IFS director Paul Johnson.

Any significant long-term impact from the Covid-19 outbreak would mean “an even bigger deficit than currently planned”, while failure to reach an EU trade deal at the end of this year would “weaken an already weak economy even further”, he said.

The IFS said Mr Sunak’s infrastructure investment plans were “genuinely very big”, taking spending to its highest level in modern times. But it warned that ministers will face a “big challenge” ensuring the money is well spent.

But it said that even if the economy escapes a major hit from coronavirus or Brexit, the Budget leaves day-to-day spending for public services other than health some 14 per cent lower per person in 2024-25 than it was when Conservatives kicked off their austerity programme in 2010.

And when spending which simply replaces EU funding is taken into account, departments other than health will find their day-to-day current budgets 19 per cent – almost one-fifth – lower per person in 2024-25 than when David Cameron came to power.

“The current spending plans are nothing like as generous as they appear,” said Mr Johnson.

“Average annual increases of 2.8% sound substantial. Take account of the need to replace EU funding, and factor in planned increases for health, schools, defence and overseas aid, and there is relatively little here for other departments.

“If this spending envelope is stuck to, there are plenty of public services which will not be enjoying much in the way of spending increases over the next few years.”

Spending levels in many areas will remain well below 2010 levels “for a long time to come”, said Mr Johnson, adding: “Expectations may be disappointed.”

Even this rate of growth in spending, however, will not be “sustainable for any prolonged length of time” unless the chancellor is ready to raise taxes or accept debt moving “decisively” upwards.

Already, his plans see borrowing peak at £67 billion within the next few years, nearly £30 billion above its 2018/19 level.

The decision to allow debt to rise at a time of steady, if “deeply disappointing”, growth was not consistent with former chancellor George Osborne’s mantra that the government should “fix the roof while the sun is shining”, warned Mr Johnson.

Mr Sunak’s borrowing-fuelled giveaways make the UK “more vulnerable to changes in interest rates, inflation and growth”, and debt would grow “sharply” in the case of a downturn, he said.

Paul Johnson (IFS)

The IFS said that Mr Sunak’s £12bn package of financial support to deal with the coronovirus outbreak was “substantial (and) fairly well designed”.

But Mr Johnson added: “It remains to be seen whether it will be enough to support public services, support the vulnerable and insulate the economy from long-term effects.”

Groups of workers including the self-employed will not be helped by Mr Sunak’s changes to sick pay and could quickly face financial hardship if they are forced to take time off work because of coronavirus, he said.

“Mr Sunak will certainly want to monitor the effectiveness of the package and be ready to come back with more if necessary,” he said.

The IFS warned that a strategy for achieving net-zero carbon emissions by 2050 was “desperately required”.

“The decisions made in this Budget don’t provide great confidence that the government is willing to grasp the nettle,” said Mr Johnson.