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Tue, 26 January 2021

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The IFS Has Warned Public Services Are Facing "Another Bout Of Austerity" Under Rishi Sunak's Spending Plans

The IFS Has Warned Public Services Are Facing 'Another Bout Of Austerity' Under Rishi Sunak's Spending Plans

The IFS has warned public services could face another "bout of austerity"

4 min read

The Institute for Fiscal Studies has warned that some areas of public services could be facing a further "bout of austerity" if the Chancellor presses ahead with his spending plans.

The independent think-tank said the Chancellor's spending decisions would lead to a "tougher time" for some public services with many facing a financial situation that "may not feel much different" to austerity.

Ministers have repeatedly insisted that the government would not return to an austerity agenda in order to fill the economic blackhole in the UK's finances caused by the pandemic, with Mr Sunak stating public spending would rise by 3.8% next year.

But Paul Johnson, the IFS' director, said the policies unveiled on Wednesday would leave many non-covid core services "extremely tight" once the £55bn boost to the NHS for the pandemic response was accounted for.

"The key core spending review decision was to reduce public service spending, other than the £55 billion allocated for Covid, relative to March plans. It may seem odd to ignore that £55 billion, but none of that is planned to continue beyond next year so it is right to focus on the rest," Mr Johnson said.

"That core spending will still be 4% higher next year than last. But it will mean a tougher time for some public services than expected, especially after the next year. This may not quite be a return to austerity, but for some public services it may not feel much different.

"Once you account for the government's various commitments on health, defence and so on, things look extremely tight for everything that remains.

"Remember that outside of Health, real-terms public service spending was cut by 20% (25% per person) over the decade to 2019-20. Some of those areas could well be facing another bout of austerity - if the Chancellor does in fact stick to his spending plans."

Meanwhile, the IFS analysis concluded it was likely that Mr Sunak would need to raise a further £40bn in tax rises or spending cuts to balance the books, saying it was "questionable" for the Treasury to assume there would be no additional spending required for the Covid response beyond 2021.

And they argued that Mr Sunak would likely be forced to scrap plans to drop the temporary £20-a-week uplift in universal credit which is set to run until March next year.

"He has also allocated precisely nothing for Covid related spending after next year. And these plans assume that the temporary increase in Universal Credit will not continue beyond this year," Mr Johnson added.

"Each of these assumptions is questionable. It seems more likely than not that spending will end up significantly higher than set out today, and so borrowing in 2024-25 will be considerably more than the £100bn forecast."

Meanwhile, the IFS chief hit out at the decision to freeze public sector pay for some, saying the measures would likely only save the Treasury between £1 and £2bn next year.

Speaking on Wednesday, Mr Sunak announced that frontline NHS workers would see wages increase next year, but that other public sector workers - including police officers, teachers and civil servant - would have their pay frozen.

The Chancellor told MPs the move was to "ensure fairness between the private and public sectors," adding that he could not "justify a significant, across-the-board pay increase" for all public sector workers while wages among private sector workers were under pressure.

But Mr Johnson said the decision appeared to be driven by "politics not by economics".

"The Chancellor has perhaps picked a big fight over not very much money," he added. And as ever in the public sector the decisions look driven by politics not by economics of the need to spend money either equitably or efficiently.

"It is graduate public serctor workers in London and the South East who are least well paid relative to the private sector and local living costs yet they will be targeted by the freeze.

"Two teachers working half time on £20,000 each will each get a £250 pay rise. A full-time teacher doing the same job for £40,000 will get nothing.

"This is no way either to spend public money or to treat public sector workers."

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