OBR: Autumn Statement measures will cause £19bn fall in public spending power

Fiscal watchdog warns of growing risk that public spending plans will not be met
Jeremy Hunt delivering his Autumn Statement in the House of Commons. Source: Alamy

By Tevye Markson

22 Nov 2023

The measures set out in the Autumn Statement - which included £19bn in tax cuts -  will slash departmental spending power by £19bn, the Office for Budget Responsibility has said.

Speaking in a press briefing following the Autumn Statement, OBR chair Richard Hughes said: “The decision in this autumn statements to add just £5bn pounds a year in cash terms to departmental budgets, despite significantly higher inflation, means that the real spending power of these budgets is eroded by around £19bn [by 2027-28] relative to our March forecasts.”

“The eagle-eyed amongst you will recognise that is roughly equal to the amount the chancellor spent on the two big tax cuts in this fiscal event,” Hughes said.

“Had [Hunt] sought to preserve the real spending power of public services, in the face of higher inflation over the next five years, that would have left him with relatively little to spend on other measures.”

The chancellor announced a number of cuts to National Insurance Contributions in his Autumn Statement, and an £11bn tax cut for business.

The OBR’s report economic and fiscal outlook report, published alongside the Autumn Statement, says unprotected departments’ day-to-day spending will now need to fall by 2.3% in real terms from 2025-26 under the current government plans. Delivering a 2.3% a year real terms fall in day-to-day spending would “present challenges”, it adds.

“Performance indicators for public services continue to show signs of strain, for example the backlog in crown courts reached a record high of 65,000 in August 2023 and eleven ‘section 114s’ notices have been issued by local authorities since 2018, compared to two in the preceding 18 years. The Institute for Government’s recent report found that performance in eight out of nine major public services has declined since 2010, with schools the exception. Longer-term pressures on public spending, such as from climate change and an ageing population, are also building, as discussed in our Fiscal risks and sustainability reports,” the report adds.

This challenge will be even greater if defence spending goes up to 2.5% of GDP, as the government has promised, and aid spending returns to 0.7% of national income, the OBR said. 

If this happens, unprotected spending would have to fall by 4.1%, the OBR says.

The Institute for Government's programme director Nick Davies, who works on the Performance Tracker report referred to by the OBR, said: "Spending plans look even more implausible now than in March, with the chancellor choosing to cut taxes at the cost of an even tighter squeeze on public services.

"The chancellor has abdicated his responsibility for public service performance, leaving it for the next government to pick up the pieces."

The plans have also drawn scorn from economists. 

Ian Mulheirn, an economist at the Resolution Foundation, called the plans “implausible”.

“OBR draws out completely implausible implications -real terms cuts of 2.3-4.1%/yr after 2025 for unprotected departments,” he tweeted.

“What’s the plan here? Abolish the criminal justice system and public transport maybe? This should be the debate, not ‘have they really cut taxes?’.”

He added: “This isn’t sustainable and whoever wins the election will have to raise those taxes again – and then some – just to keep the wheels on”.

Torsten Bell, chief exec at the Resolution Foundation, added: “The giveaways announced today are funded by handing whoever wins the next election implausibly large spending cuts.”

Stephanie Flanders, head of Bloomberg News Economic, added that the forecast £19bn erosion in public spending would be a “ticking time bomb for the next parliament”.

 

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