The Institute for Fiscal Studies has warned that "unprotected" government departments are facing spending cuts of up to 3.5% a year as a result of the lack of new cash for public services in the Spring Budget.
In an analysis of the measures set out yesterday by chancellor Jeremy Hunt, the independent think tank said the decision to stick with a 1% annual increase in spending on public services would not be felt evenly across government.
IFS research economist Bee Boileau said that "protected" spending, such as on the NHS – which in England is set to get a 2.5% boost in 2024-25 – would mean real-terms cuts for other parts of government.
"This protection means quite dramatic real-terms cuts to unprotected departments in England, which includes areas like prisons, courts and local government," she said. "So we calculate that spending in these areas will fall by between 1.9% and 3.5% each year after next year."
Boileau said protected areas, including defence, schools and early years – as well as the NHS – were expected to benefit from annual funding uplifts in the range of 2%-2.9% between 2024-25 and 2028-29.
However, she said that the scale of cuts faced by unprotected departments was less marked than under the Conservative/Lib-Dem coalition government from 2010-15, when annual cuts of around 6% were required.
"So it's feasible that these cuts could be delivered, but I should note that departments are starting from a different point and a lot of the savings found in 2010 were a one-off," Boileau said. "We calculate that to avoid cutting unprotected departments, a top-up of around £10bn-£20bn would be required in 2028-29."
Mike Clancy, general secretary of the Prospect unon, said the IFS' Spring Budget analysis exposed the truth about a new wave of austerity set to hit public services.
"Once again the government is playing cynical games with the public finances, claiming a 1% rise in funding when actually many departments face catastrophic 3.5% cuts," he said. "Public services and agencies like the Environment Agency, Natural England and the Health and Safety Executive are already at breaking point and suffering from a recruitment and retention crisis. Further funding reductions of this magnitude could sound the death knell for services we rely on."
Productivity targets are "really quite ambitious"
Apart from the funding boost for the NHS, Hunt gave no detail about how it was expected that departments would meet spending plans on annual budgets that are highly likely to be insufficient over the coming years.
The chancellor merely proposed a new round of productivity plans, backed with £800m of funding, and said in his statement that departments were going to have to work out ways to spend their existing allocations "better".
The IFS' Bolieau said the quantum of productivity improvement required to do that would "be difficult to realistically deliver" and implied a worsening of many public services.
"The level of these productivity improvements that were hinted at by the chancellor seem really quite ambitious," she said. "Although it's worth noting that there might be scope for some catch-ups since productivity remains lower than it was immediately before the pandemic."
She predicted that the next spending review would follow historical precedent and see current spending plans topped up.
Defence-spending pledge "not worth the paper it's written on"
Yesterday's budget saw Hunt set out a handful of aspirational pledges. They included floating the idea that a future Conservative government might abolish National Insurance contributions and promising defence spending would rise to 2.5% of gross domestic product from the current 2% "as soon as economic conditions allow".
IFS director Paul Johnson said today that Hunt's stance on defence spending was remarkable.
"Economic conditions allowed a £10bn cut in NICs this year. So they could have allowed a £10bn increase in defence spending instead," he said. "That would have just about met the target. Actions speak louder than words."
Johnson said the aspiration to abolish National Insurance was as unrealistic as the restated defence-spending stance.
"This pledge to cut taxes by more than £40bn goes in the same bucket as pledges to increase defence spending – not worth the paper its written on unless accompanied by some sense of how it will be afforded," he said.