Owl says: This way council tax go up to cover the shortfall and government can avoid the responsibility of raising general taxes even more than the are about to be raised. The end result is that we all pay more for less – unless you are super-rich, of course.
“Philip Hammond has told Whitehall to plan for another round of cuts before next year’s spending review, putting him on a collision course with some cabinet colleagues who want tax rises instead of austerity.
The chancellor wants ministries without protected budgets, including public health, further education, local government and transport, to work with the Treasury in the summer to identify potential areas for savings.
Some departments believe that these budgets could be cut by as much as 5 per cent. The letter calling for work to start on the savings, sent by Liz Truss, the chief secretary to the Treasury, last week, does not contain a specific target.
Spending totals have been set until the spring of 2020. Mr Hammond will allocate individual budgets, traditionally for the following four years, in a comprehensive review after next spring.
He must first fight a battle with colleagues over whether to raise taxes to cushion some or all of the cuts. Some senior cabinet ministers are understood to be squaring up for a fight. Last week’s public sector pay rises must be paid out of existing budgets.
One minister said: “Philip Hammond has got Theresa May to agree to no more borrowing [above the fiscal rules] so that means it looks like cuts to pay for the extra money for the NHS. But the answer is to raise taxes to protect spending.”
The chancellor has already made it plain that extra tax rises are likely to be necessary to pay for the £83 billion extra in coming years that was announced for the NHS in June.
The overall mix of spending cuts and tax rises could be announced in the autumn budget, inconveniently coinciding with the middle of the Brexit negotiations, or delayed until the comprehensive spending review itself. Mr Hammond has secured a commitment from Mrs May that she will keep to fiscal rules, which force the government to reduce the cyclically adjusted deficit to below 2 per cent of GDP by 2020-21 and having debt as a share of GDP falling in the same period. The chancellor has headroom of £15 billion against the 2021 deficit target, meaning that his scope for borrowing is minimal.
Michael Gove, the environment secretary, has suggested to cabinet ministers that more needs to be done to improve growth. Gavin Williamson, the defence secretary, has proposed boosting it with a tax giveaway such as that brought in by President Trump. The debate about spending and taxation has already begun on the Tory back benches. Bim Afolami, MP for Hitchin & Harpenden, said he understood that the Treasury had a hard job but added: “We urgently need to shift the debate away from management of tough budgetary rules towards growth, moving from austerity to prosperity for a majority of people in this country.
“We need to move away from a necessary but ultimately negative message of managing tough budgetary moves, towards a forward-thinking vision for post-Brexit prosperity sooner rather than later. In general terms every single department should be looking for savings, just like every business does.”