UK austerity measures to extend ‘well into the 2020s’

posted by Su-San Sit
8 February 2017

The UK faces 15 years of austerity if the government continues its current target to eliminate the budget deficit by the next parliament, according to the Institute for Fiscal Studies (IFS).

In its annual Green Budget report the IFS says that the chancellor Philip Hammond’s aim to remove the deficit would force the government to find an extra £34bn, stretching the time of spending cuts and tax rises.

“Meeting his [the chancellor’s] target of eliminating the deficit during the next parliament will probably mean an additional consolidation of up to £34bn, extending the period of spending cuts and tax rises well in to the 2020s,” it said.

Under current plans, the IFS warned that the tax burden would rise to its highest level in 30 years with the average percentage of income being taxed reaching 37% by 2020, even though the Conservative government had previously said that income tax, national insurance and VAT would not rise.

The report said public spending on pensions, health and overseas aid would increase, while education, defence and public order and safety spending would be significantly cut.

The IFS calculated that spending on public services had already fallen by 10% since 2009-10; making it the longest and biggest fall in public spending on record, and it predicted a further 3% fall by 2019-20.

Paul Johnson, director of the IFS and editor of the Green Budget, said despite the emphasis on Brexit, the largest impact on public finances would be spending cuts and tax rises inherited from the chancellor's predecessor George Osborne.

“For all the focus on Brexit, the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne,” he said.

“Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise. Even so, the new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament.”

In a statement to the BBC the Treasury said: “The government is committed to repairing the public finances and living within our means so that we can build an economy that works for all.

“That has required some difficult decisions on spending but we are determined to deliver efficient public services which provide maximum value for every pound of taxpayers money.”

Looking forward, the report noted that Brexit could force the government to make deeper cuts, with the economy predicted to be 3% smaller by 2030 than if the UK voted to remain.

Speaking to economia, Andrew Goodwin, lead UK economist at Oxford Economics and co-author of a chapter in the Green Budget, criticised prime minister Theresa May’s Brexit strategy of taking the UK out of the single market and imposing immigration controls.

“Over the longer term, the government’s chosen path for Brexit is one of the more economically damaging,” he said.

“The only outcome that we have studied that would be worse than what the government has chosen would be us not having a trade agreement at all and falling out on World Trade Organisation terms.”

Hammond will reveal his budget on Wednesday 8 March, the first since the UK voted to leave the EU in June last year.

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