If the chancellor is to end austerity he must reduce spending cuts and freezes in a number of areas, which the Resolution Foundation calculates could amount to more than £31bn by 2022-23.
Philip Hammond will have to end day-to-day departmental spending cuts in areas like schools and police from 2019-20 onwards, according the think-tank’s Tunnel Vision report out today. But the chancellor must also maintain spending commitments on the NHS, defence and international aid – totalling £26.3bn by 2022-23.
The report said Hammond would also need to cancel the final year of the benefit freeze and increase benefits by 2.4% next April, which would cost £1.7bn by 2022-23 and prevent low-income families with children losing around £250 next year.
A third step would be to reverse cuts to work allowances in universal credit, which would cost around £3bn by 2022-23, bringing the total spend to £31bn.
The foundation noted that the chancellor could be buoyed by a £13bn windfall that the Office for Budget Responsibility is expected to identify.
An OBR publication from Friday said that its forecast for cash receipts from March this year was “too low and that the recorded onshore corporation tax data are likely to be revised up once we have reflected this in our October forecast”.
Matt Whittaker, deputy director at the Resolution Foundation, said: “The chancellor has a seemingly impossible task in his budget of ending austerity, reducing the national debt and keeping the public finances protected against any Brexit uncertainty.
“But should strong public finances figures lead the OBR to deliver a £13bn windfall, the chancellor’s ‘mission impossible’ may become ‘just about plausible’.”
The think-tank said that ending austerity will require tax rises if the government is to end austerity and reduce the national debt- both of which were promised in May’s speech to conference last earlier this month.
Cancelling the planned corporation tax cut from 19% to 17% in 2020 would save £6bn and remains an option for the chancellor.
Whittaker said: “Any tax rises are difficult during Brexit negotiations, especially given the lack of a Conservative majority in the House of Commons. However, the government will at some stage have to examine options such as scrapping planned corporation tax cuts and using ‘fiscal drag’ to raise more from income tax.”
Last week, the Institute for Fiscal Studies calculated that public services will require £19bn annually to end austerity.
