Departments could face cuts similar to the peak austerity years at the end of this parliament, the Resolution Foundation has warned.
In its response to the 2025 Budget, the think tank said that announcements made yesterday imply cuts in 2028-29 and 2029-30 “equivalent to 88% of the average annual cuts made during the peak austerity years”.
Yesterday’s Budget set out that departments will need to find day-to-day savings amounting to £2.8bn in the financial year 2028-29, rising to £4bn in 2029- 30, and £4.9bn in 2030-31. Departments will be asked to set out efficiency plans to deliver these savings at the 2027 Spending Review.
These cuts will mean department’s day-to-day spending power will grow at an average of 0.8% per year in real terms from 2028-29 to 2030-31. Broken down, spending growth is around 0.5% per year in both 2028-29 and 2029-30 and 1.5% in 2030-31.
Another announcement in the Budget that will affect department's spending power was the decision to count special educational needs and disabilities provision funding as part of the day-to-day spending envelope from 2028-29, transferring the risk associated with overspend from local to central government.
The Budget did not make clear which department will cover the estimated £6.3bn in additional costs this will create in 2028-29. As a result of the move and other pressures on day-to-day spending, the Office for Budget Responsibility has reduced its assumption for departmental underspending in 2028-29 from £1.9bn to zero.
The Resolution Foundation said these decisions – along with the assumptions that defence spending rises to 3.5% of GDP by 2035, health spending grows at its long-run average of 3.6%, and education spending is held flat in real per-pupil terms – "imply cutting ‘other’ departments (including local government and justice) by £6.4bn in real terms between 2028-29 and 2029-30".
“Cuts of this nature would be equivalent to 88% of the average annual cuts made during the peak austerity years (2009-10 to 2018- 19),” it said. “By 2030-31, this would leave real per-person spending in other departments 22% below 2009-10.”
The Resolution Foundation added that the “big picture” is that day-to-day spending will have increased by between £45-54bn a year between 2025- 26 and 2029-30 compared with the plans made by the previous Conservative government.
It also said the government “has made only minor adjustments to previous years” and has “wisely avoided the common mistake of cutting investment to balance the books”.
Are the spending plans unrealistically low?
The Institute for Fiscal Studies’ has warned departments may struggle to deliver the savings committed to in the Budget.
Speaking at a post-budget briefing this morning, Hellen Miller, director of the IFS, said: “The government now claims that day-to-day spending will only rise by around 0.5% per year in real terms in both 2028-29 and 2029-30, down from around 1% per year.
“The lower spending will come, we are told, from efficiency savings above and beyond those built into spending plans published just back in June.”
She said this is “quite a big deal”, noting that £4bn, or one-third of the additional headroom the government has created at this Budget, comes from this change.
“All will be revealed at the 2027 Spending Review,” Miller added. “Perhaps the government really will be able to find new efficiency savings. Or maybe, when the time comes and the election looms, it will find that the spending plans are unrealistically low.”
Also commenting on the spending plans, Nick Ridpath, a research economist at the IFS, said: “We’ve seen time and time again that governments have a clear tendency to promise future cuts which they don’t go on to deliver, and given these savings are really ambitious, it seems there’s a chance we could be here again.”
Asked if the plans are realistic, Ben Zaranko, an associate director at the think tank, said the government will have to look at what it wants the state to “stop doing”, “start charging for” or “means test” if it wants to make “serious cuts” to public spending.
“We want to be specific about things rather than just waving a magic wand and hoping things will materialise,” he said.
Answering a question on whether the Budget’s spending plans amount to pre-election austerity, Zaranko said: “Spending will still be growing overall on public services. It will just be growing really quite slowly towards the back end of this decade.”
But he said the plans will mean “the usual suspects – the police prisons, local government, HMRC, job centres – all that stuff is facing real-terms year-on-year cuts”.
“Whether that’s austerity or not, there’s no single definition on which everyone agrees, but that does look like a difficult pre-election period for the courts system for instance,” Zaranko said. “So if that comes to pass, that will be tricky.”