Government ‘should borrow more to protect public services’

19 Sep 18

The government should borrow tens of billions of pounds more a year to protect public services, a think-tank has suggested.

Services such as prisons and public health could face real terms cuts of 2.1% or 4.1% per capita in the first half of the 2020s if the government fails to provide them with more money, the New Economics Foundation has claimed.

Even with the government’s announcement of an extra £20.5bn for the NHS earlier this year by 2023/24, this would amount to “no average increase at all”, in Austerity by Stealth?, the first in a series of work looking at the future of public services in the 2020s.

“We find that unless the government changes course, the chancellor’s recent claim that there is ‘light at the end of the tunnel’ will amount to hollow rhetoric,” the report warned.

The think-tank added: “Reversing this trajectory is entirely possible.” It suggested for “keeping up with demand pressures in health, social care and schools services” would cost an extra £14.6bn a year by 2023-24.

To improve outcomes further an extra £31.8bn would be needed, the foundation said.

“Our analysis shows that government has the space to borrow tens of billions more per year, compared to its current plans,” the report stated.

It also proposed that higher progressive taxation could be used as a “complement or alternative to borrowing”.

To reverse the effects of austerity “public services are in dire need of a new settlement and a boost in resources” otherwise the living standards lost through cuts to public services “could become permanent”, the think-tank warned.

Alfie Stirling, head of economics at NEF, said that austerity has “arguably been the worst economic policy error in a generation”.

Sarah Arnold, research at NEF, said: “Austerity has decimated our public services. It is time to move on from this failed experiment that has ruined lives.

“But even though the government has talked about ‘the light at the end of the tunnel’, away from the headlines we are still facing a further five years of austerity by stealth, including for: prisons, public health and homelessness services.”

The research pointed to Office for Budget Responsibility analysis, which said discretionary cuts to public services have suppressed GDP by a cumulative 15% between 2010-11 and 2017-18, equating to £10,000 per household.

The NEF calculated potential funding cuts for prisons as totalling £70m, public health funding around £80m and housing up to £30m by 2023-24.  

Last week, the Institute for Government criticised the Treasury saying that its spending plans were “not credible”.

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