IFS: Departments will still face spending squeeze as Budget plans 'not as generous as they appear'

Analysis of public spending figures indicates that much of announced spending increases will be taken up by existing policy plans

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Spending plans announced in the Budget are "nothing like as generous as they appear", according to the Institute of Fiscal Studies.

Fresh analysis from the independent think tank said public services were unlikely to see major budget boosts left over after planned increases to public spending were devoured by previously-announced departmental projects and replacing EU funding.

It comes after chancellor Rishi Sunak unveiled more than £600bn in capital spending over the next five years, as well as an annual 2.8% boost in day-to-day spending on public services.


But in a post-Budget analysis, the IFS said the "genuinely very big" spending plans also appeared to be "suspiciously front-loaded" for the next two years, and could require top-ups in future budgets.

IFS director Paul Johnson said: "Average annual increases of 2.8% sound substantial. Take account of the need to replace EU funding, and factor in planned increases for health, schools, defence and overseas aid, and there is relatively little here for other departments.

"If this spending envelope is stuck to, there are plenty of public services which will not be enjoying much in the way of spending increases over the next few years."

Spending is set to increase from £330.4bn in 2019-20 to £417.6bn by the end of the Spending Review period in 2024-25, but around £7-8bn of this will be spent replacing EU funds. This means the total real-term increase in public spending will be closer to 2.1%, according to IFS research economist Ben Zaranko.

Once already announced schools and NHS spending increases is stripped out, there will only be around £3bn for other public spending areas, like policing and social care, as well as the cost of the Home Office’s post-Brexit immigration regime and HMRC’s customs plans, he said.

“Those areas won’t on average be facing real-terms cuts, based on these estimates, but they will be facing quite tight settlements. Some cuts for other areas remain in the realm of possibility.”

The think tank also warned it would be unlikely Sunak could deliver the spending plans without major increases in government borrowing or taxes.

‘Obviously not sustainable’

The analysis said the spending increase was "obviously not sustainable for any prolonged length of time" and would lead to £125bn being added to public sector net debt by 2024-25 to fund the plans.

Johnson said: "The key risk is that once again growth disappoints, and that this leaves the chancellor with the choice of whether to rein back again on spending, or to announce further tax rises, or to abandon his fiscal targets and to allow debt to rise further."

He added: "It doesn’t matter how hard you review it, though, the iron laws of fiscal arithmetic will assert themselves.

"The only way that a change in the fiscal rules can help justify more spending without tax rises is if the chancellor is happy to see underlying debt rise more quickly."

But Sunak said that extra borrowing to pay for the plans was the "right economic thing to do".

He said: "We borrow to invest for things like infrastructure, rail, road, broadband and we that because it raises our long term productivity as a country, it provides jobs it raises wages and that I think is the right economic plan."

Meanwhile, the IFS said the "substantial" £12bn package aimed at offsetting the impact from the coronavirus had resulted in there being "two Budgets rolled into one" but added it was unclear whether the stimulus package would be enough to counter any shock to the economy.

Johnson said the measures were "timely, targeted and temporary" but that it "remains to be seen whether it will be enough to support public services, support the vulnerable and insulate the economy from long-term effects."

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