Budget won’t bring an end to austerity, warn experts
CHANCELLOR Rishi Sunak’s Budget may not bring an end to austerity and taxes could still have to rise, economists warned yesterday.
The respected Institute for Fiscal Studies said that while the annual increases in public funding sounded ‘substantial’, they did not represent a spending free-for-all.
In fact, once increases to the NHS budget are taken out of the equation, public spending per head of population is still lower than before the 2008 financial crisis.
Paul Johnson, director of the IFS, said that if austerity is defined as the level of spending, this means the policy is not necessarily over ‘for a long time to come’.
However the spending commitments were of such an extent that they could lead to increased taxes in the future.
And the urgent need to tackle England’s social care crisis means taxes will probably have to rise to pay for that.
In Wednesday’s Budget, Mr Sunak unveiled a huge rise in public spending, including £600 billion on infrastructure and innovation.
But yesterday Mr Johnson said: ‘The current spending plans are nothing like as generous as they appear. Average annual increases of 2.8 per cent 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.’
He added: ‘Current spending plans also look suspiciously front-loaded. Spending increases pencilled in for the next two years are much bigger than what follows.
‘This could suggest top-ups in later budgets and hence a need for more tax or more borrowing.’
Mr Johnson said current spending per person for most public services will remain well below 2010/11 levels in 2024/25.
‘Outside of health, spending per person will still be 14 per cent lower, and around 19 per cent lower once you account for the spending that is simply replacing EU funding,’ he said. Mr Johnson added: ‘ Outside of health and a few other protected areas it looks like little will be available to increase spending. ‘ Raising real day- to- day spending on public services will eventually require tax rises. Mr Sunak proudly announced that day-to- day departmental spending will enjoy “an average growth rate in real terms of 2.8 per cent – twice as fast as the economy”.
‘That is obviously not sustainable for any prolonged length of time.
‘Importantly, while austerity is clearly at an end in the sense that spending is rising, spending levels in many areas are set to remain well below 2010 levels for a long time to come. Expectations may be disappointed.’
The IFS director also said Margaret Thatcher’s idea of reducing the size of the state was now dead.
Public spending now accounts for 41 per cent of national income – the largest since the 1980s apart from a brief period during the financial crisis – and Mr Johnson said he expected this to continue for at least a decade.
The IFS criticised Mr Sunak for saying nothing about social care in his Budget.
Mr Johnson said: ‘If we want to end up in a world where people don’t lose houses then someone is going to pay for it.’
‘Not as generous as they appear’ ‘Expectations may be disappointed’
And he expressed concerns that the vast amounts of cash ploughed into infrastructure will not be spent effectively.
‘One thing the Chancellor should think hard about is the way in which the current framework favours capital spending,’ he said.
‘Not all capital spending is good. Not all current spending is bad. There is a risk that spending will be mis-allocated because there is so much more new capital to go around while current spending remains tight. These sorts of largely arbitrary distinctions can be costly.’