Given the deep cuts in spending made in Rish Sunak’s budget, particularly, for Whitehall departments and local government, as pointed out by a leading thinktank IFS (The Institute for Fiscal Studies) , the UK heads towards an era of austerity.
The IFS, the leading tax and spending thinktank has warned, that despite the added pressures caused by Covid-19, areas of spending not separated by the Treasury were facing substantial reduction in their budgets, which is about an 8% reduction in their budgets compared with pre-pandemic plans.
The IFS also said that some of the departments such as Home Office and HMRC even with additional responsibilities due to Brexit, are now being lined up for spending cuts.
Ben Zaranko, research economist at the Institute, said: “Plans can change but, as things stand, for many public services, the first half of the 2020s could feel like the austerity of the 2010s.”
The Treasury said: “This is categorically not a return to austerity. We are significantly increasing public spending with a £72bn rise over this year and next – and forecasted rises in spending over the rest of this parliament. We have not set departmental budgets for 2022 onwards, but remain committed to investing in our vital public services. Anything that suggests this government is returning to austerity is misleading.”
The independent Office for Budget Responsibility, the body that forecasts the economy and the public finances, said Sunak had cut down £4bn from public service spending from 2022-23, an inflation-adjusted reduced of 1%.
However , the IFS said the reduction was, in fact, 3% once allowance was made for the Barnett formula – which meant extra spending on schools in England had to be matched by top-ups to education budgets for Scotland, Wales and Northern Ireland. This came in addition to the £10bn reduction on spending plans announced by the chancellor last November.
According to Treasury it was due to a “mechanical” change resulting from lower expected inflation in 2022-23 and there will be a real increase in spending of 2.1% between 2021-22 and 2022-3.
The IFS said Sunak had not taken into account of the fact that inflation was projected to be higher than forecasted figure in 2021-22. “They have, in effect, acted on one and ignored the other, and saved £4bn per year in the process.”
Spending cuts
Overall, the IFS said, public service spending was now planned to be roughly £14bn lower than planned pre-Covid and out of that, about £5bn came from lower spending on overseas aid.
Although some of the areas of spending such as the NHS and schools have been exempted from the cuts, cash spending for unprotected departments would be £9bn lower than under pre-pandemic plans. Given the real inflation, this would come around 7.5% in 2022-23.
This would adversely affect the departments that have not been protected by pre-arranged agreements with the Treasury. This would pose clear challenges irrespective of the impact of the pandemic.
The IFS said Sunak’s plans conveyed reductions for “perennially squeezed” areas such as the Crown Prosecution Service and the courts system. This would signal further cuts for local government and would not be in line with a coherent ‘leveling –up’ agenda.
It is clear, without a shadow of doubt, that successive spending cuts envisaged in the budget would, in fact, be tantamount to austerity measures in the context of real inflation versus Pre-pandemic projected inflation. Cutting public spending means depriving the economy of its one of the sources of growth; public spending. And this would further create a dent in the long term economic recovery.
