Chancellor faces tougher choices and tax rises if Britain is to ‘reach the end of the tunnel’ on austerity 14 March 2018 The Chancellor will need to hope for better forecasts or raise taxes if he’s to stick to his goal of eliminating the deficit and driving significant reductions in debt, while ending the UK’s unprecedented squeeze on public spending. This is according to the Resolution Foundation’s overnight analysis of the Spring Statement 2018 published today (Wednesday). The Chancellor cut a ‘tiggerish’ stance yesterday, saying that two major milestones would be reached next year with the current deficit being balanced and debt falling as a share of GDP. He also hinted that the improved fiscal forecast would allow additional public spending to be announced in the Autumn Budget. But his bouncy mood belied a grim set of economic forecasts that remained largely unchanged from the ‘bloodbath’ of last November, and underplayed significant cuts to welfare and departmental spending still to come. The Foundation’s overnight analysis Sugar Rush finds that: Welfare cuts –Just a fifth of the over £10bn of welfare cuts announced in 2015 have been implemented so far. The coming year (2018-19) is set to be the second biggest single year of welfare cuts since the crisis (after 2012-13) at £2.5bn. The scale of additional cuts will grow in 2019-20 to £2.7bn as more families are moved onto Universal Credit. Inequality and income– As a result of policies announced since July 2015 the poorest third of households are expected to be an average of £745 a year worse off. In contrast, the richest third are forecast to record an average gain of £140 a year. Projected real household incomes are a staggering £1,400 a year lower than forecast back in March 2016. Departmental cuts –After a short lull in cuts to day to day departmental spending next year, they are set to return from 2019-20 onwards. These include a 12 per cent cut to the Ministry of Justice budget over the next two years, while central government funding of local government is set for a 19 per cent fall. In contrast, DEFRA is set for a 21 per cent ‘Brexit bonus’ next year. The next spending review– Choosing not to feed higher inflation through to day-to-day departmental spending in the period beyond the current Spending Review has contributed to the Chancellor’s better borrowing outlook in 2022-23. However, it also means yesterday’s statement marked a further small real-terms spending cut. As a result day to day departmental spending per person in 2022-23 is projected to have fallen by 17 per cent since 2010. Meeting the fiscal objective – The Chancellor is still forecast to be borrowing 0.9 per cent of GDP in 2022-23. Eliminating it by 2025-26 as originally intended would require a speeding up of departmental spending cuts in the next parliament. The OBR says that even delaying it until 2027-28 would require per capita departmental spending to fall in real terms in each year. The Foundation says that the Chancellor will face much more difficult choices in the Autumn Budget as he seeks to reconcile promises that Britain will ‘reach the end of the tunnel’ on public spending cuts while sticking to his fiscal objective of eliminating the overall deficit in the 2020s. Torsten Bell, Director of the Resolution Foundation, said: “The Chancellor’s bouncy new outlook failed to rub off on the economic forecasters, who have delivered a similarly terrible economic outlook to the ‘bloodbath’ of four months ago despite some short term good news. “And while he and his colleagues are keen to move the debate beyond austerity, the cuts facing millions of low and middle incomes families are actually set to deepen over the next two years while public service spending restraint has been pencilled in to continue well into the next decade. “With the elimination of the current deficit and debt falling next year, Britain is set to pass two major milestones on its long austerity journey since the financial crisis. But the end of the tunnel is still a decade away, and significant obstacles remain before the final destination is reached. “Steering past these obstacles will require the Chancellor to make some tough choices that he avoided setting out yesterday lest he spoil the upbeat mood. Delivering significant reductions in debt while softening currently planned spending cuts to come will require either tax rises or for Britain to heed the Chancellor’s call to ‘beat the forecasts’. Planning for the former, while hoping for the latter might be a sensible approach for the years ahead.”
