Austerity will continue unless extra billions found, economic think tank warns

Philip Hammond will have to spend billions of pounds extra if he truly wants to end austerity, an economic think tank has said.

In order to simply maintain current per capita levels of day-to-day spending across Whitehall departments which do not have ring-fenced budgets, the Chancellor would have to find an extra £5 billion a year by 2023-24, the Institute for Fiscal Studies (IFS) said.

In an analysis of the choices facing the Chancellor in this year’s spending review, the IFS said Mr Hammond would need to spend £11 billion to avoid it falling as a share of national income.

The IFS said spending increases already promised by the Chancellor would be swallowed up by commitments to fund the NHS, defence and international aid – potentially meaning cuts to other areas.

“The provisional totals set out in the Autumn Budget imply that day-to-day public service spending will increase by 6.1% (£18.2 billion) between 2018?19 and 2023?24,” the IFS report said.

“This would outstrip population growth, putting per capita spending on an upward trend.

“But this would not be enough to meet the cost of the Government’s existing spending commitments on the NHS, defence and overseas aid while avoiding cuts elsewhere.

“Other ‘unprotected’ areas are therefore, on current plans, facing further budget cuts of around 0.4% per year in real terms between 2019?20 and 2023?24, and cuts of 0.9% per year in per capita spending.

“This would slow the pace of the cuts experienced by those areas since 2010, but would by no means represent an ‘end to austerity’.”

Although previous spending reviews have covered a number of years, the IFS report said that Mr Hammond may choose to set out plans only for 2020-21 because of the economic uncertainty due to Brexit.

The IFS said a no-deal Brexit would lead to lower growth, requiring either spending cuts or higher taxes – but in the short term the Government might need to borrow more to fund a stimulus package to mitigate the impacts for the hardest-hit areas of the economy.

But any boost to spending would be temporary, and further austerity would eventually be required, the think tank said.

Ben Zaranko, a research economist at the Institute for Fiscal Studies and an author of the report, said: “The Chancellor needs to decide what period the next spending review should cover and what funding to make available to it.

“This could be the most important announcement in next month’s Spring Statement.

“The Government has already committed to increase day-to-day NHS spending by £20 billion over the next five years.

“Even though the latest plans have overall day-to-day spending increasing over that time, these increases wouldn’t be enough even to cover the NHS commitment in full.

“This suggests yet more years of austerity for many public services – albeit at a much slower pace than the last nine years.

“And while an economically bad Brexit would likely mean lower spending in the longer term, if anything it might require additional spending over the next few years.”

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