Rishi Sunak is set to usher in public service cuts of up to £17billion from the government’s pre-pandemic plans unless he acts this summer to boost funding, a group has warned foreground thinking.
The Institute for Fiscal Studies has said the government is on track to spend between £14bn and £17bn less each year on a range of public services from April 2022 than had been forecast before Covid -19.
As the Chancellor prepares to allocate funds to ministries amid rising Covid-19 infections, the leading tax and spending think tank has warned there are growing demands on public finances that needed to be tackled head-on.
It comes after Sunak was forced to push back the official launch of the Treasury spending review as part of the continued fallout from his and the prime minister’s demand to self-isolate.
The spending review process – which is used to set budgets for departments in Whitehall – was due to be officially launched by the Chancellor this week before Parliament breaks for summer recess on Thursday. However, sources said it was now postponed until later this year after MPs returned to the Commons in September.
Treasury sources said preparatory work for the exam had already begun and would continue over the summer.
In a report outlining the economic background to the Chancellor’s spending review, the IFS said Sunak was set to receive a £30bn windfall from the Office for Budget Responsibility (OBR) for public finances this year as part of a much faster recovery than the first. dreaded.
The Treasury watchdog had predicted a budget deficit – the gap between government spending and revenue – of £234billion this year. However, the IFS and economists at US bank Citi said a shortfall closer to £203bn could be expected after the Covid vaccine paved the way for a rapid rebound in the economy this spring.
Despite this, the think tank warned that the improvement was unlikely to persist, with Britain set to suffer lasting economic damage from the pandemic, rising debt interest costs and pressure to maintain higher levels of spending on key public services as the crisis continues.
Reflecting the longer-term damage, which will impact public finances, he said the UK economy was expected to be 3% smaller by the middle of the decade than official pre-Covid estimates.
The IFS said the Chancellor therefore had little or no additional room to increase public spending if he were to maintain his medium-term goal of balancing day-to-day public spending with tax revenue, with a rule of thumb. allow only government borrowing to invest. in long-term projects.
However, the think tank warned that the government’s existing spending plans involved cuts to some unprotected government departments worth up to £17billion, and included no additional virus-related spending – which should be reduced to zero after the end of the current financial period. year in March 2022, despite the current crisis.
It comes after the OBR warned Sunak it would need to find an extra £10billion a year for the next three years to fund the cost of the government’s Covid response, including maintaining the testing scheme and NHS tracing, providing vaccination boosters and responding. to the health impact of the pandemic.
Isabel Stockton, research economist at IFS, said any higher spending to meet Covid demands and cost pressures, or to meet pre-existing spending demands such as social care, may require cuts in spending elsewhere, tax hikes or higher levels of borrowing.
“Our forecast suggests that the Chancellor has almost no additional room for permanent spending giveaways if he is to stay on track to achieve the current budget balance. This suggests a very difficult spending review,” she said.
The Treasury said departmental budgets have not yet been confirmed for future years, adding: “It is therefore speculative to describe the political pressures at this stage.
“As we continue to recover from the pandemic, we remain committed to investing in our vital public services, and we will continue to do so in the next spending review.”