Some public services face prospect of 'austerity' from April next year, think tank warns

Rishi Sunak faces challenges. Credit: PA

The prime minister has promised that there will not be a return to the austerity that followed in the wake of the financial crisis.

But on Wednesday, the chancellor unveiled a budget that is set to deliver a squeeze on spending in some government departments.

Rishi Sunak set out a plan designed to secure the economic recovery and then repair the fiscal hole Covid-19 will leave behind.

The Office for Budget Responsibility forecasts he is on course to “balance the books” - aligning day-to-day spending with revenues - by 2025/26.

The chancellor is doing this by increasing taxes significantly and by cutting £4 billion a year from his pre-pandemic plans for public service spending, on top of the £12 billion he already cut last November.

According to Institute for Fiscal Studies (IFS), overall spending on public services - excluding exceptional virus-related costs like PPE - will still rise by £9.1 billion a year from April 2022.

The NHS in England gets the lion’s share of that extra money, £7 billion, schools in England get the rest of it and more, £2.5 billion.

As a result, the IFS calculates that, if these plans are stuck to, other “unprotected” departments - like Justice, Local Government, Transport - now face real-terms cuts of around £1 billion a year from 2022/23

The budgets for these departments are significantly smaller than they were in 2010 and, in many cases, the pandemic has left them under great strain.

The courts have to deal with a huge backlog of cases, council finances are under immense pressure, trains and bus operators have been bailed out by government and look likely to require taxpayer subsidy for some time to come.

“If the chancellor keeps to the numbers that are in yesterday’s budget then we’ll get back to some form of austerity,” says Paul Johnson, the head of the IFS.

“I think the much more likely outcome is that those numbers will turn out not to be of any great meaning at all and that we’ll end up spending more than currently planned but that will obviously means more borrowing or more taxes than the chancellor is claiming.”

IFS Director Paul Johnson on the challenges Rishi Sunak faces

The chancellor has yet to detail how much money the government will spend on hospital, schools and other public service from 2022/23 onwards. The next spending review is expected in the autumn.

A Treasury spokesperson said: “We have categorically ruled out a return to austerity. Under any definition, this government is significantly increasing public spending.

"Over this year and next, we will increase spending by £72 billion and it's forecast to continue rising right across the Parliament – funding new hospitals, schools and recruiting more police and nurses.

"Anything that suggests the contrary is simply wrong and misleading.”