Institute for Fiscal Studies

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Brexit crucial to government spending plans

Today Programme

BBC Radio 4

We might find out more about the Chancellor's spending plans in the Spring Statement (Wednesday 13 March), but perhaps not, said Paul Johnson, head of the respected economic think tank the Institute for Fiscal Studies.

"He may well decide to leave it longer, given all the uncertainties around Brexit," he said.

If there is a no-deal Brexit the Chancellor might decide to spend more to support the economy, said Mr Johnson.

"That means over the longer run it's going to mean several more years of austerity to row back from that expansion," he said.

'£10bn required to end austerity'

Today Programme

BBC Radio 4

Philip hammond
Reuters

It has been overshadowed by Brexit, but the Chancellor Philip Hammond has to decide whether he wants to decisively end austerity.

The scale of the cuts so far have been "historically extraordinary" - £40bn to departmental spending.

To end austerity Chancellor Hammond has to find "at least £10bn", said Paul Johnson, head of the Institute for Fiscal Studies.

"Even if ends austerity, he stops cutting, it's still not going to feel great in some areas."

Hammond 'give away' - IFS

Szu Ping Chan

Business Reporter

chart
BBC

Thomas Pope, economist at the IFS, delves into where Philip Hammond’s borrowing windfall came from.

He highlights that stronger tax receipts and an under spend by government departments had put the UK economy on a path where the deficit was “declining pretty quickly”.

On its own, the UK would be borrowing just over £2bn in 2022-23 to plug the gap between revenues and spending. It was on course to eliminate the deficit the following year

However, Mr Pope highlights that while the public finances enjoyed a £68.5bn underlying improvement, the Chancellor “decided to give it all away”.

While spending eases the squeeze in government departments, it also leaves the public finances in a more precarious position in the longer term.

For example, what happens to Britain’s debt share? Mr Pope says it could leave the economy less able to deal with “nasty fiscal shocks”.

Raided capital spending

BBC economics editor Kamal Ahmed tweets:

NHS spending increase 'nothing historic'

While proportionately, NHS spending is going up , in absolute terms there is "nothing particularly historic" about yesterday's Budget announcements on spending on health, Mr Johnson caveats.

The IFS calculates spending is rising between 2.6% a year and 3.4% a year depending on how it is measured.

"That compares with average increases of 3.7% a year over the NHS's entire history and a 6% a year over the period of the last Labour government".

Higher NHS spending could mean tax rises - IFS

hospital
Reuters

Mr Johnson says the budget was about the NHS - and to maintain spending taxes will have to go up.

"And as for working out what you can afford and then deciding on priorities, [the chancellor] has instead decided on priorities - NHS, NHS, NHS - before deciding total spending."

Mr Johnson says health spending is set to rise from 29% of public spending in 2010 to 38% by 2023-24.

"That's a remarkable increase. Other public services have been paying the price. At some point we will have to pay more tax if we are to continue to increase spending on the NHS like this."