Government will need to find extra £5bn to pay for spending review pledges, say IFS

Posted On: 
3rd September 2019

Sajid Javid will need to find an extra £5billion to pay for a host of government pledges in the spending review, according to a leading think tank.

Sajid Javid has been warned about making spending pledges without updated economic forecasts
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The Institute for Fiscal Studies (IFS) said the Chancellor risks setting out departmental budgets without knowing if they will be fiscally sustainable after Brexit.

They said by making major announcements in Wednesday’s speech to Parliament without updated projections from the Office for Budget Responsibility, he risked “a return to the bad old days when Chancellors could make fiscal claims not based on the best available independent forecasts".

Its analysis comes after Boris Johnson said on Monday he was “proud” that Mr Javid "is going to set out the most ambitious spending round for more than a decade".

The PM has already made a number of pledges including hiring 20,000 extra police officers, upgrading 20 hospitals “in addition to the extra £34 billion going into the NHS”, and investing an extra £14billion on primary and secondary schools over the next three years.

The IFS said these announcements are being made on the basis of a fiscal headroom which would be wiped out if the Treasury used up-to-date forecasts incorporating the recent slump in economic activity.

Its director Paul Johnson said: “Making big fiscal announcements in a period of great economic uncertainty means we will have little idea how sustainable or costly decisions made this week will be.

“The risks are exacerbated by not having up-to-date forecasts from the OBR.”

He said the next set of Office for Budget Responsibility forecasts due later this year will show a deterioration in the UK’s financial outlook.

Mr Johnson added: “This could mean the Chancellor’s £15billion of apparent headroom shrinks.

“He may claim that he is keeping planned borrowing next year within 2% of national income but new OBR figures due later this autumn could suggest otherwise.”

Ahead of the spending review, Mr Javid and the health secretary Matt Hancock made a joint announcement of a £210 million funding boost for frontline NHS staff.

Writing in the Times, the Cabinet ministers said: “We are delivering on the Prime Minister’s commitment to make the NHS this government’s top spending priority.

“The decisions we’re taking this week will mean we can renew and rebuild this nation’s most revered and loved public service.”