UK will need to spend billions more to end austerity, IFS warns

Written by Matt Foster on 11 February 2019 in News

Theresa May told the Conservative faithful at the party's conference last year that "the end is in sight" to years of public spending cuts

Image credit: PA

Philip Hammond will need to spend billions more every year to make good on the UK Government's vow to end austerity, a new report from a leading think tank has said.

Theresa May told the Conservative faithful at the party's conference last year that "the end is in sight" to years of public spending cuts.

But the latest study from the Institute for Fiscal Studies think tank said plans set out at last year's budget still set a course for "real terms cuts in day-to-day spending on public services outside of health, defence and overseas aid".

It found that while cuts now lined up for departments "would be much smaller than those already implemented", Chancellor Philip Hammond will need to up public spending significantly at the coming Spring Statement to avoid a further squeeze on Government budgets.

"To avoid any cut to real-terms per capita spending on unprotected services would require an additional £5 billion by 2023–24," the think tank said.

"Maintaining spending on unprotected services as a share of national income would require £11 billion on top of the plans set out in the last Budget."

Labour pounced on the figures to challenge the Government's claim it was bringing the era of austerity to a close.

Shadow Chancellor John McDonnell said: "The evidence is mounting that despite Theresa May's rhetoric, austerity is not over.

"Unless Philip Hammond, at the very least, finds another £5bn at the Spring Statement, departments will be planning for yet more cuts next year.

"Nine years of brutal Tory austerity have wounded our public services and the whole country which relies on them."

The Spring Statement - which sets out the Government's latest forecasts for the economy - is due to take place on March 13 - just weeks before the UK is scheduled to leave the European Union.

The IFS found that leaving the EU without a deal would "make for lower growth and an economy smaller than otherwise" - with ministers potentially turning on the spending taps to "mitigate the impacts for the worst hit sectors or areas and provide funding to departments now required to perform additional functions, notably at the border".

But it warned that any boost to public spending after a no-deal outcome would be "temporary", with a further round of austerity "eventually" needed to balance the books.

Ben Zaranko, a research economist at the IFS, said: "The Government has already committed to increase day-to-day NHS spending by £20 billion over the next five years.

"Even though the latest plans have overall day-to-day spending increasing over that time, these increases wouldn’t be enough even to cover the NHS commitment in full.

"This suggests yet more years of austerity for many public services – albeit at a much slower pace than the last nine years. And while an economically bad Brexit would likely mean lower spending in the longer term, if anything it might require additional spending over the next few years."

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