Chancellor Rishi Sunak’s plans to cut £16bn from public spending “do not look deliverable without considerable pain”, the director of the influential Institute for Fiscal Studies thinktank has said.
Mr Sunak added £4bn of cuts in yesterday’s Budget to the £12bn outlined in the spending review last autumn, and made no provision for continued costs of the coronavirus pandemic to the NHS beyond next year.
But IFS director Paul Johnson said the spending figures looked “implausibly low” and said he would put odds of ten to one against them being achieved.
And he accused the chancellor of failing to “level with the people about his choices” by passing the £4bn cut off as a technical change resulting from fluctuations in inflation. Describing Mr Sunak’s plans to cut spending as “pretty shaky”, Mr Johnson said: “How he is actually going to fix the public finances remains to be seen.”
Delivering the independent thinktank’s analysis of Mr Sunak’s second budget, Mr Johnson said the chancellor had played Santa with coronavirus support, but turned Scrooge with longer-term tax and spending plans amounting to almost £50bn of belt-tightening compared to pre-Covid plans.
Mr Johnson said that Mr Sunak’s “screeching U-turn” on longstanding Conservative low-tax policy would deliver “the highest sustained tax burden in UK history”.
And he said the chancellor’s “remarkable” decision to hike corporation tax by six percentage points to 25 per cent from 2023 was “something of a gamble… that it won’t have too terrible an effect on investment”.
Freezing income tax personal allowance thresholds will drag an additional 1 million workers into the higher band by 2025.
By that point, some 5 million – one in six income tax payers – will be paying the 40 per cent rate on earnings, compared to 3 million when Conservative-led governments came to power in 2010, he said.
Mr Johnson also said it was “remarkable” that Mr Sunak chose not to phase out the £20-a-week uplift to Universal Credit from October, but instead to impose a cliff-edge cut of more than £80 a month on some of the country’s poorest families.
If the payments – totalling around £6bn a year – must be withdrawn, the case for taking them away more gradually “looks unanswerable”, he said.
Details of where the spending axe will fall were not set out in Wednesday’s Budget.
But Mr Johnson said that the protection offered to spending on the NHS, schools, defence and aid meant that other areas, such as law and order and local government would once again face real-terms cuts after a decade of austerity.
Although the Treasury claims that the additional £4bn of reduced spending was a technical change to take into account lower inflation forecasts, Mr Johnson said that in reality the cut will cause “real additional pain”.
And he asked: “Are we really got to spend £16bn 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. I’d say no, of course not.
“There are pressures from all sorts of directions. The NHS is the most obvious – further top-ups seem near-inevitable.
“Catching up on lost learning in schools, dealing with backlogs in our court system, supporting public transport, fixing social care will all require additional spending.
“The chancellor’s medium-term spending plans simply look implausibly low.”
While the chancellor had done “a decent job” of providing support for businesses and workers as the UK emerges from coronavirus, his spending plans for the following years “do not look deliverable, at least not without considerable pain”, said Mr Johnson.
“How he is actually going to fix the public finances remains to be seen,” he added.
Mr Sunak’s failure to identify where he will find money for post-pandemic priorities like reforming social care and reducing inequality was “a big hole” in the Budget, said the IFS boss.
“On … how to deal with the longer-term consequences of a pandemic, he has been just silent,” said Mr Johnson.
“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.”
