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Fri, 5 June 2020

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More than £50bn of extra spending needed to end austerity, top think tank tells Rishi Sunak

More than £50bn of extra spending needed to end austerity, top think tank tells Rishi Sunak
3 min read

Ministers will have to spend an extra £54bn on public services if they are serious about ending austerity, a leading think tank has said.


In a pre-Budget assessment of the public finances, the Institute for Fiscal Studies pointed out that day-to-day public spending per person is still 26% below its 2010 peak.

And the IFS said £54bn of spending would be needed “just to return to real 2010 levels”, when the Conservative-led coalition government kicked off a decade-long round of spending cuts across a swathe of Whitehall departments.

Labour said the figures showed “the damage done by a decade of decline under Conservative governments”.

The findings came as the IFS warned new Chancellor Rishi Sunak he would not be able to rely on more borrowing if he wants to up public spending or slash taxes because he is “hemmed in” by rules established by his predecessor Sajid Javid. 

The Government has already promised to boost spending on the NHS, schools, defence and overseas aid.

But, the think tank said Mr Sunak would have to increase taxes or cut spending elsewhere if wants to go beyond those promises and invest in other public services while sticking to his predecessor’s fiscal rules.

Changes signed off by Mr Javid said the Conservatives would eliminate the deficit in day-to-day spending by the middle of the Parliament, while borrowing for infrastructure can rise to 3% of GDP - up from 2%.

There has been speculation that Mr Sunak, who stepped into the top job at the Treasury after Mr Javid’s dramatic resignation, could ditch the rules in favour of looser restrictions.

But the IFS said that abandoning the current pledges "would put underlying government debt on a clearly rising path" - a move it says "would not be sustainable in the long term".

"There have now been 16 fiscal targets announced over the last decade,” the IFS said.

"If the target to balance the current budget were abandoned in this Budget it would be the shortest lived of them all. Abandoning it now would surely undermine any credibility attached to fiscal targets set by this government.”

'RADICAL CHANGE'

IFS director Paul Johnson said Mr Sunak’s first Budget “could be the most important fiscal event in years”.

He said: "It will set the direction of policy for the next five years. If this new government is going to make radical change to taxes and spending this surely is the time to do it."

But Mr Johnson warned: "The Chancellor is hemmed in by a rising deficit and fiscal targets set out in the Conservative manifesto. They will allow him to increase investment spending, which will be welcome if well targeted. 

“But they will not allow substantial increases in current spending, or tax cuts, to be funded by more borrowing. We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas. Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax.”

Seizing on the IFS analysis, Shadow Chancellor John McDonnell said: “This analysis shows the damage done by a decade of decline under Conservative governments, and the scale of investment needed even just to get back to 2010 spending levels.

"Ten years of Tory rule have brought ten years of chaotic and erratic economic policy, with 16 fiscal targets proposed and ripped up and productivity growth plummeting.

"Despite all the hype about this budget turning a page, it risks setting in train five years of disappointment. Labour will continue to call for the fair taxation and investment needed to end austerity and tackle our social and climate emergencies.”