Spending Round: Government doesn’t know if funding pledges will be sustainable after Brexit, says IFS
Making spending announcements without an updated fiscal forecast from the OBR risks "a return to the bad old days"
Chancellor Sajid Javid. Photo: PA
The government is set to make a series of spending pledges this week without knowing if they will be fiscally sustainable after Brexit, a leading think tank has said.
In a statement before chancellor Sajid Javid’s accelerated Spending Round announcements on Wednesday, the Institute for Fiscal Studies said that making major pledges without updated projections from the Office for Budget Responsibility risked “a return to the bad old days when chancellors could make fiscal claims not based on the best available independent forecasts”.
The government has made a number of spending pledges since Boris Johnson became prime minister, including the recruitment of 20,000 police officers, creation of more prison places and extra funding for NHS – although it has since emerged that over half of the £1.8bn NHS "cash boost" announced by Johnson was not in fact new money but existing reserves that trusts had previously been blocked from spending. On Friday, the government announced a number of planned increases to the Department for Education’s school budget, to increase it by £2.6bn in 2020/21, a further £2.2bn in 2021/22, and an extra £2.3bn in 2022/23, compared to the 2019/20 baseline. This will bring the schools budget to £52.2bn in 2022/23, according to DfE, and will reverse the cuts to schools funding made since 2009-10, according to the IFS.
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However, the think tank said making such spending pledges despite there not having been an update from the OBR since spring creates a risk for the Treasury. The fiscal watchdog provides updates twice a year, at the Autumn Budget and Spring Statement. There will be no OBR report to coincide with the Spending Round.
So far, the government’s funding pledges are expected to add at least £9bn to day to day public services spending next year.
As the OBR forecast in March that the government could spend around £15bn more and keep within its fiscal target to keep borrowing below 2% of national income next year, Javid is likely to say on Wednesday that the extra spending remains within target.
However, economic projections from a host of forecasters have deteriorated since spring, and the OBR could change its forecasts at its next report. For example, a no-deal Brexit has been forecast by the fiscal watchdog to lead to a £30bn hit to the public finances.
IFS associate director Rowena Crawford said economic growth has slowed since the spring and in reality Javid may have a lot less than the £15bn of headroom he seemed to have back then.
IFS director Paul Johnson added that “making big fiscal announcements in a period of great economic uncertainty means we will have little idea how sustainable or costly decisions made this week will be”.
He added: “The risks are exacerbated by not having up to date forecasts from the OBR. Fiscal events and forecasts should occur together if we are to maintain faith in a fiscal framework which has served us well in terms of transparency since it was introduced in 2010.”
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