The Institute for Fiscal Studies and its Director Paul Johnson make it all very clear.
Mr Sunak had three challenges in this Budget – to ensure the right level of support for the economy over the next few months, to set about fixing the longer term public finances, and to deal with the longer term consequences of the pandemic, especially its unequal consequences.
He has done a decent job of the first, arguably erring on the side of generosity.
He has given us a sense of where he wants to go on the second, but he still has a lot of work to do and his spending plans in particular don’t look deliverable, at least not without considerable pain.
On the third he has been silent. No money to deal with post pandemic priorities. No policies to deal with the inequalities that have opened up over the last year between rich and poor, old and young, more and less well educated. This is a big hole in the chancellor’s and the government’s policies, a hole which needs to be filled and soon if we are not to suffer a much worse hangover from this crisis than need be the case.
Extract from Paul Johnson’s opening remarks:
The other assumption is that public service spending plans will be delivered. The big story here remains that the Autumn spending review took some £12 bn a year out of pre pandemic plans in real terms. Yesterday the chancellor chose to trim around £4 billion per year from his cash plans for public service spending after next year. Now these are not firm plans, but they are the basis for the future public finance estimates. They are a very shaky basis.
The Treasury argue that as far as this additional £4 billion cut is concerned this is a purely mechanical change because of a lower inflation forecast. Well up to a point, but it is a particular measure of inflation, depressed by current lockdowns. It does not represent any real reduction in cash needs going forward and it’s pretty clear that, if delivered, this additional £4 billion cut in cash spending will cause additional pain. This isn’t just a mechanical change and presenting it as such means the Chancellor isn’t really levelling with people about the choices the government is making to repair the public finances.
The actual costs facing departments are unlikely to have fallen. And since the NHS, schools and the Ministry of Defence all have budgets fixed in cash terms until later in the Parliament, this new £4 billion cut will fall entirely on other, unprotected services. Those areas – including perennially squeezed budgets like justice and local government – are now facing real-terms cuts in 2022–23. That’s a recipe for a very tricky Spending Review in the autumn.
But that’s only if you think these plans will actually be stuck to. Are we really going to spend £16 billion less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022?
In reality, there will be pressures from all sorts of directions. The NHS is perhaps the most obvious. Further top-ups seem near-inevitable. Catching up on lost learning in schools, dealing with the backlog in our courts system, supporting public transport providers, and fixing our system for social care funding would all require additional spending. The Chancellor’s medium-term spending plans simply look implausibly low.