Budget spending cuts ‘deeper than thought’

IFS research economist uncovers unbalanced application of inflation estimates leading to deeper “real” cuts than appear from a superficial look at the budget – Owl

Philip Aldrick, Economics Editor www.thetimes.co.uk

Rishi Sunak’s departmental spending cuts in the budget were deeper than thought, analysis by the Institute for Fiscal Studies shows.

The chancellor took advantage of a change in the Office for Budget Responsibility’s inflation outlook to cut everyday spending budgets by £4 billion in cash terms from 2022-23 onwards while holding fast to the government’s principle that it is ending austerity.

However, the IFS found that he did not apply the same principle to the OBR’s higher inflation forecast for 2021-22. Rather than raise cash spending, he held it.

Ben Zaranko, an IFS research economist, said the double standards showed that the claim that the cut was a response to the altered inflation outlook did not stand up to scrutiny.

“Describing this as simply a ‘mechanical change’ is misleading. It’s a choice,” he said.

As the higher inflation estimate for 2021-22 more than offset the lower estimate for 2022-23, the price level in 2022-23 is higher than previously forecast, which makes the cut even deeper in real terms, he added.

The overall impact of the November spending round and the March budget was to reduce spending by £14 billion from 2022-23 compared with plans before the pandemic.

As protected departments such as health and schools have separate cash deals, unprotected departments including justice and local government face an ever deeper squeeze.

“The plans in the budget mean spending 8 per cent less on unprotected services in 2022-23 than the government was planning prior to Covid — despite the extra demands caused by the pandemic,” Zaranko said.

Sunak unveiled a significant increase in public service spending in the budget. Day-to-day spending on public services is on course to grow 3 per cent above inflation over the parliament.

A Treasury spokesman said: “This is categorically not a return to austerity. We are significantly increasing public spending with a £72 billion rise over this year and next. We remain committed to investing in our vital public services.”