Budget 2018: IFS scotches talk of public service ‘bonanza’

30 Oct 18

There will be “no bonanza” for public services after this year’s Budget, economists have warned.

Although the chancellor handed out billions to public services in yesterday’s Budget, the Institute for Fiscal Studies argued that there were still “difficult years ahead”.

Delivering the IFS’s post-budget analysis, director Paul Johnson, said: “This is no bonanza. Many public services are going to feel squeezed for some time to come.

“If I were a prison governor, a local authority chief executive or a headteacher I would struggle to find much to celebrate. I would be preparing for more difficult years ahead.”

He added that total day-to-day spending on public services is planned to rise by about 8% between now and 2023-24, but spending outside of protected areas is “essentially flat”.

Johnson said that, despite Philip Hammond making extra provision for areas including defence and social care in Monday’s budget, public services would “pay the price” for the government’s prioritisation of increased spending on the NHS.

The economist told delegates at a briefing on Tuesday, that health spending will have risen from 23% of public service spending in 2000 to 29% in 2010, and is set to reach 38% by 2023-24.

“At some point, we will need to pay more tax if we are to continue to increase spending on the NHS,” he warned.

In his Budget, Hammond claimed that austerity is “coming to an end” and announced various cash boosts including £650m for social care, £1bn for defence spending and £420m for pothole repairs.

Johnson argued that these measures would signal the end of austerity only “on a narrow definition”.

Ben Zaranko, research economist at the IFS, said overall day-to-day spending on public services is set to increase on a per person basis, and, “on this definition austerity for public services looks to be over”.

But he warned that unprotected departments (outside of the NHS and defence) are set to see falls in per capita terms as a share of national income – something that could be interpreted as a continuation of austerity.

“It depends on how you choose to define austerity,” he said.

Zaranko also suggested that because the funding for social care is not ring-fenced “we are not sure that all of that money will go on social care”.

Discussing Hammond’s two year business rates relief, Helen Miller, associate director of the IFS, asked what the long-term plan for this source of revenue was.

She suggested that, instead of short-term relief on business rates, the government should reconsider its position.

“If there are concerns coming from the business rates system already it would be easier to fix that system,” as opposed to offering short term relief, Miller said.

“Why not move to just a land value tax?” she added.

Read Liberal Democrat business spokesperson, Chris Fox’s blog for PF on replacing business rates with land value tax.

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