It would cost chancellor Philip Hammond at least £31bn to meet the prime minister’s pledge to end austerity in the Budget next week by cancelling all cuts to departmental spending, a report has found.
Ending day-to-day departmental spending cuts would cost £26.3bn alone, the Resolution Foundation said in a report today, while ending welfare cuts and freezes would cost an additonal £4.5bn.
The report by the think tank comes after it was reported on Monday that the Office for Budget Responsibility was preparing to announce the largest annual change in borrowing forecasts since it started publishing the figures in 1982, having underestimated recent tax receipts.
However, the Resolution Foundation said this would amount to less than half of the money needed tofulfil Theresa May’s headline Conservative Party conference pledge that “austerity is over” In a speech at the conference earlier this month, May said spending on public services would go up over the next Spending Review period. The Budget will set out the direction of public spending, before the Spending Review distributes funding to government departments next year.
Exactly what May’s pledge means for public finances depends on how austerity is defined, today’s report concluded. The prime minister warned there would be “no return to the uncontrolled borrowing of the past”.
“At a minimum, it should involve ensuring that real-terms spending on day-to-day public services ceases to fall in the next Spending Review period (starting in 2020-21),” the report said.
The Resolution Foundation’s analysis found that while the annual £13bn would be a “big helping hand” when it came to paying for a planned boost to NHS funding. Philip Hammond had previously warned the proposed £20bn annual boost would leave little extra money for other government departments.
However, the report also warned that the additional money for the NHS in England, alongside ongoing protections for spending on both defence and aid, meant that even spending £26.3bn to cancel cuts to other areas of public spending would still leave government departments facing tough spending decisions amid increasing cost pressures.
As well as halting departmental cuts – which the report defines as preventing extra cuts to areas including schools and the police, and maintaining spending commitments on the NHS, defence and aid – the calculations also include £1.5bn to end the freeze on benefits. Benefits are currently scheduled to be frozen until 2020-21, but uprating them by 2.4% in April to match inflation would prevent a low-income family with kids losing around £250 next year, the report said.
A further £3bn would be needed to restore the value of work allowances in Universal Credit, the report said.
Hammond cannot simply use the extra fiscal headroom to end of austerity, the foundation said, because it would leave him exposed to future OBR downgrades and contravene his goal of pushing down debt. Its report said “significant tax rises” would be needed to accomplish both goals.
Hammond’s options include freezing the main income thresholds after they reach the target levels included in the Conservative Party manifesto in 2020, to save £2bn by 2022-23. Cancelling a planned corporation tax cut in 2020 would save a further £6bn, it said.
“The chancellor has a seemingly impossible task in his Budget of ending austerity, reducing the national debt and keeping the public finances protected against any Brexit uncertainty,” said Matt Whittaker, deputy director at the Resolution Foundation.
“But should strong recent public finances figures lead the OBR to deliver a £13bn windfall, the chancellor’s ‘mission impossible’ may become ‘just about plausible’.”