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Sat, 30 May 2020

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Rishi Sunak's Budget spending plans 'not as generous as they appear', says Institute for Fiscal Studies

Rishi Sunak's Budget spending plans 'not as generous as they appear', says Institute for Fiscal Studies
3 min read

Spending plans announced in the Budget are "nothing like as generous as they appear", according to a fresh analysis from the Institute of Fiscal Studies.


New analysis from the independent think tank said public services were unlikely to see major budget boosts after planned increases to public spending were devoured by previously-announced departmental projects and replacing EU funding.

It comes after Chancellor Rishi Sunak unveiled more than £600bn in capital spending over the next five years, as well as an annual 2.8% boost in day-to-day spending on public services.

But according to a post-Budget analysis, the IFS said the "genuinely very big" spending plans also appeared to be "suspiciously front-loaded" for the next two years, and could require top=ups in future budgets.

Paul Johnson, director of the IFS, said: "Average annual increases of 2.8% 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."

The analysis also warned it would be unlikely Mr Sunak would be able to deliver the spending plans without major increases in government borrowing or taxes.

'OBVIOUSLY NOT SUSTAINABLE'

The analysis said the spending increase was "obviously not sustainable for any prolonged length of time" and would lead to an additional £125bn added to public sector net debt by 2024/25 in order to fund the plans.

Mr Johnson said: "The key risk is that once again growth disappoints, and that this leaves the Chancellor with the choice of whether to rein back again on spending, or to announce further tax rises, or to abandon his fiscal targets and to allow debt to rise further."

He added: "It doesn’t matter how hard you review it, though, the iron laws of fiscal arithmetic will assert themselves.

"The only way that a change in the fiscal rules can help justify more spending without tax rises is if the chancellor is happy to see underlying debt rise more quickly."

But Mr Sunak defended the spending splurge, saying extra borrowing to pay for the plans was the "right economic thing to do".

He said: "We borrow to invest for things like infrastructure, rail, road, broadband and we that because it raises our long term productivity as a country, it provides jobs it raises wages and that I think is the right economic plan."

Meanwhile, the IFS said the "substantial" £12bn package aimed at offsetting the impact from the coronavirus had resulted in there being "two Budgets rolled into one" but added it was unclear whether the stimulus package would be enough to counter any shock to the economy.

Mr Johnson said the measures were "timely, targeted and temporary" but that it "remains to be seen whether it will be enough to support public services, support the vulnerable and insulate the economy from long-term effects."

The analysis came as Labour's John McDonnell welcomed the Budget's commitment to fresh coronavirus spending, saying the crisis was not the time for "partisan political knockabout".

But he told MPs as debate on the statement continued in the Commons: "This Budget should have been the most significant since the Second World War and a turning point.

"As time has allowed scrutiny of this Budget, it's become clear it failed. It doesn't come close to reverse the damage of the last ten years of austerity.

I caution the Chancellor, you are sowing the seeds of disappointment and disillusionment which could stir up a form of politics none of us wish our country to experience."

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