IPPR predicts public spending squeeze

11 Mar 04
Chancellor Gordon Brown faces tough choices over public spending and may have to cut investment in key services to balance the Treasury's books, according to an influential think-tank.

12 March 2004

Chancellor Gordon Brown faces tough choices over public spending and may have to cut investment in key services to balance the Treasury's books, according to an influential think-tank.

The Institute for Public Policy Research says that if, as expected, Brown uses the Budget on March 17 to confirm the tightest public spending limits since 1998, the era of above-inflation increases for most departments will be over.

The IPPR's senior economist, Peter Robinson, said the announcement would set the scene for 'difficult trade-offs' in the 2004 Spending Review, due in July. 'For most public services, spending as a proportion of gross domestic product will have to remain stable or will have to fall in the next Parliament,' he said.

Total spending by 2007/08 is expected to be 42.1% of GDP, marginally up from 41.9% in 2005/06. Brown is not expected to revise this figure when he addresses Parliament next week.

After the Budget, spending departments will start lobbying the Treasury in earnest for their slice of the cake before Brown finalises the 2005–2008 spending round.

Health is the only area guaranteed to continue receiving generous settlements, reaching 7.9% of GDP by the end of the next spending round. But Robinson warned that, as a result, many other service areas were vulnerable to spending squeezes.

Education funding, which has previously been as generous as that for health, should be frozen at its proportion of GDP, Robinson said. 'The education budget cannot be allowed to rise if the government is to continue to make progress on its child poverty targets and to avoid slashing the transport budget.'

Robinson also said that, to protect the government's priority areas, the proportion of GDP spent on agriculture and industry support would have to be cut, and the housing and defence budgets would have to be frozen.

Also this week, Mori released a pre-Budget poll showing that the public is pessimistic about the long-term prospects for public services and the economy.

Just 30% of respondents agreed that the government's policies would improve services, compared with 57% who disagreed and 13% who were neutral. On the economy, 37% agree that the government's policies will improve it, down from 48% six months ago.

PFmar2004

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