Hammond needs to find billions if he wants to end austerity, IFS says

Chancellor Philip Hammond is yet to confirm how much money will be made available to be allocated among departments at his forthcoming spending review, though think tank the Institute for Fiscal Studies (IFS) said he will need to find “extra billions” to end austerity.

The analysis from the IFS, funded by the Economic and Social Research Council, found that, over the four years from 2019/20 to 2023/24, Hammond would need to find a further £2.2bn to avoid cuts to unprotected spending.

The Chancellor would need to get his hands on an extra £5bn to avoid spending falling in per-capita terms, as well as an additional £11bn to avoid spending falling as a share of national income.

The analysis revealed that the provisional plans set out in the autumn 2018 Budget implied continued real terms cuts in day-to-day spending on public services outside of health, defence and overseas aid. This is on top of the £40bn worth of cuts to those budgets since 2010.

According to the IFS, Brexit should not impact the forthcoming review, though a no-deal Brexit could make for lower growth and an economy smaller than otherwise, resulting in lower spending and higher taxes in the medium term.

However, in the short run, the institute said the government may potentially increase spending to support the economy, mitigate the impacts for the worst hit sectors or areas, and provide funding to departments now required to perform additional functions.

“But any boost to spending would be temporary, and further austerity would eventually be required,” it added.

Commenting on the analysis, IFS research economist Ben Zaranko said: “The Chancellor needs to decide what period the next spending review should cover and what funding to make available to it. This could be the most important announcement in next month’s Spring Statement.

The Government has already committed to increase day-to-day NHS spending by £20 billion over the next five years. Even though the latest plans have overall day-to-day spending increasing over that time, these increases wouldn’t be enough even to cover the NHS commitment in full.

“This suggests yet more years of austerity for many public services – albeit at a much slower pace than the last nine years. And while an economically bad Brexit would likely mean lower spending in the longer-term, if anything it might require additional spending over the next few years.”

Hammond is due to publish the Treasury’s 2019 spending review sometime this year, which will contain detailed departmental allocations for 2020/21, and potentially beyond.

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