Ending austerity will cost the Chancellor billions of pounds more in public spending increases, an economic think tank has warned.
Philip Hammond will have to find an extra £5 billion a year by 2023-24 simply to maintain current per-capita levels of day-to-day spending across Whitehall departments which do not have ring-fenced budgets, 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 he would need to spend £11 billion to avoid public spending 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.
Shadow chancellor John McDonnell said the report undermined Mr Hammond’s rhetoric at last year’s Budget that the government had brought about an end to austerity.
The IFS report says: “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 says.
“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 said 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 hit growth, requiring spending cuts or higher taxes, but in the short term the government might need to borrow more to fund a stimulus package. Any boost to spending would be temporary, and further austerity would eventually be required.
Mr McDonnell said: “Nine years of brutal Tory austerity have wounded our public services and the whole country which relies on them.
“The Chancellor has promised a Brexit bonus and any failure to deliver it at the Spring Statement will be yet more evidence of the Tories’ failure to negotiate a Brexit deal that benefits jobs and the economy.”
Ben Zaranko, a research economist at the IFS 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.
“The government has already committed to increase day-to-day NHS spending by £20 billion over the next five years... 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.”