Rishi Sunak set to usher in £ 2bn worth of cuts to government departments tasked with adhering to the Tories’ flagship ‘leveling’ program, despite planning for biggest tax raid in a generation .
The Institute for Fiscal Studies (IFS) said the Chancellor was on track to raise the UK’s tax burden to the highest level sustained in peacetime with a package of anti-manifest tax increases during of this month’s budget and expenditure review.
While the tax raid would help fund a state expansion at the highest level of government spending since 1985, the leading independent think tank for public finance said several departments in Whitehall would still face budget cuts.
In an intervention ahead of Sunak’s historic post-containment budget slated for later this month, the IFS said continually restricted areas such as local government, higher education, prisons and courts could see their budgets cut by more than £ 2 billion next year.
“These budgets were drastically reduced in the 2010s, and a further round of cuts would be difficult to reconcile with the government’s stated goals – especially around ‘leveling up’,” he said.
In its assessment of the “green budget” of public finances, released with the economic forecast from investment bank Citi, the think tank said overall government spending was on track to hit 42% of national income. , about 2% more than before the pandemic.
However, he warned that the pressures of an aging population meant that a growing share went to health care, while there was less left for other areas of Whitehall spending despite the Conservatives’ talkative promises of leveling and the end of austerity.
Without a substantial change in leadership, he said Sunak was on track to increase spending on utilities other than health, defense, schools and overseas aid less than what was planned before the spread of the coronavirus last year.
Against the backdrop of rising costs of living amid an ongoing energy crisis in the fall, the IFS said the tax hikes announced by the government were indeed “introduced” under the guise of pandemic.
Boris Johnson last month gave the green light for an increase in national anti-manifesto insurance to fund health and social care, while Sunak earlier this year announced plans to increase the tax on human rights. corporations by 2023, reversing decades of conservative orthodoxy for lower taxes and state intervention.
The Chancellor introduced himself last week as a low-tax Thatcherite in a keynote address to party members at the Conservatives’ conference in Manchester, saying he would prioritize balancing the books.
Giving the Chancellor wiggle room ahead of the budget, the IFS said it would likely get a £ 50bn boost to public finances this year compared to the official forecast made in March.
He said he expected the deficit – the deficit between government spending and revenue – to rise to around £ 180bn in the current fiscal year, significantly lower than forecast by Spring from the Office for Budget Responsibility for a loan of nearly £ 240 billion.
Speculation has grown among senior Tories that Sunak could build wiggle room for a package of tax cuts ahead of the next general election, scheduled for 2024, if the UK economy continues its stronger-than-expected recovery from Covid.
The IFS said the Chancellor could benefit from government borrowing around £ 20 billion lower than the OBR forecast in March by the end of Parliament as government finances are expected to return to a surplus for women. daily expenses by 2023. -24.
However, he warned that there was still heightened uncertainty about the lasting impact Covid-19 would have on the economy and public finances, while pressures on health and social care spending only continued to grow. ‘to augment.
Citi’s analysis estimated the UK economy to be between 2% and 3% smaller in 2024-25 than before the pandemic, with Brexit causing a deeper healing effect than Covid.
“The scars just from the pandemic may not be as bad as we thought last year. The scars from Brexit may actually be bigger, ”said Christian Schulz, the bank’s director of European economics. “Brexit casts a shadow on the economy. “
In the best-case scenario, the IFS said the government could reap the biggest current budget surplus since 1972; whereas in the most pessimistic cases, the planned tax increases would have to be tripled to achieve the same result.
Paul Johnson, Director of IFS, said: “[Sunak] remains faced with great uncertainty about the direction of the economy and therefore the state of public finances. He is unexpectedly hoping that stronger-than-expected income growth over the next few years will help him come out of what still looks like a good-sized hole.
A spokesperson for the Treasury said the government will continue to invest in key public priorities.
“Basic departmental spending will increase in real terms during this parliament at almost 4% per year on average – a cash increase of £ 140 billion and the largest real increase in overall departmental spending of all parliaments of this century. “