Philip Hammond would need to find an additional £11bn for unprotected government departments to spare them from further austerity, according to the latest estimates from the Institute for Fiscal Studies (IFS).
In last year’s November Budget the chancellor announced that “the era of austerity [is] finally coming to an end”.
But his overall fiscal plans still implied further cuts over the coming five years to a host of Whitehall departments, from the Home Office, to environment, to transport.
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The IFS today estimates that preventing this additional squeeze taking place, on top of the substantial cuts imposed since 2010, would require the government to allocate these departments an additional £11bn in the forthcoming spending review, due later this year.
This is the sum that would be needed to keep spending on these departments steady as a share of GDP. To keep spending on them steady in real terms per capita – a less demanding target but arguably consistent with an end to austerity – would still require £5bn of spending.
“The chancellor needs to decide what period the next spending review should cover and what funding to make available to it,” said Ben Zaranko of the IFS.
“Even though the latest plans have overall day-to-day spending increasing over [the next five years], 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.”
Unprotected departments – everything outside health, defence and overseas aid – have already taken aggregate total cuts of £40bn since 2010 under the coalition and then the Conservatives.
Central government grants to councils have been cut in half, putting huge pressure on the delivery of social care.
The cuts to come
The Ministry of Justice and the Department for Environment, Food and Rural Affairs have seen their day-to-day spending budgets slashed by 40 per cent over that time.
The Chancellor’s current plans imply that these departments are facing annual cuts of 0.4 per cent over the coming years.
Mr Hammond will deliver his spring statement on 13 March – slightly more than two weeks before the Brexit date. The spending review will set detailed departmental allocations for the 2020-21 financial year – and possibly beyond.
The IFS warned that a no-deal Brexit would likely severely harm the public finances, necessitating lower spending or higher taxes in the medium term – though the chancellor might, in the short term, have to increase spending to support the economy.
Despite banking an unexpected windfall from downward borrowing forecast revisions last year, Mr Hammond has stressed that he currently has £15bn of projected “fiscal headroom” against his self-imposed borrowing rules in 2020-21 with which to respond to a no-deal Brexit.