Budget 2023: Jeremy Hunt's 'hidden cuts' to public sector revealed

New analysis shows that even without cuts set out in the budget, inflation will result in even less money for public sector workers

Britain's Chancellor of the Exchequer Jeremy Hunt holds the budget box as he poses for pictures at Downing Street in London, Britain March 15, 2023. REUTERS/Hannah McKay
Chancellor Jeremy Hunt holds the famous red budget box at Downing Street. (Reuters)

Jeremy Hunt's spring budget included almost £22bn in unannounced cuts to the public sector, according to analysis from The New Economics Foundation (NEF).

Hunt announced a raft of new measures in Wednesday's budget, including a £4bn boost for childcare and welfare reforms designed to help people into work.

However, the chancellor has been accused of ignoring the plight of public sector workers who have been staging a wave of strikes over pay and conditions since last year.

Hundreds of thousands took part in one of the biggest walkouts yet on Wednesday as Hunt delivered his budget, which included nearly £22bn in “unannounced cuts”.

The NEF said public sector workers would be hit even harder by the “hidden cuts”, which are a result of unrealistic assumptions of how inflation will develop.

This includes the Office for Budget Responsibility (OBR) assuming inflation will fall well below the Bank of England’s (BoE) target of 2% from 2024/25, and an assumption of zero inflation in 2025/26.

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Spring 2023 Budget '£22 billion in hidden cuts' https://twitter.com/alfie_stirling/status/1636070646009548802?s=20
A chart by the New Economics Foundation shows how £22 billion in cuts can be hidden away by inflation. (NEF/@alfie_stirling)

The NEF said the numbers were not a realistic interpretation of inflation dropping, because if it fell to zero, the BoE would intervene to attempt to keep inflation at or above 2%.

By 2027/28, the think-tank said the public sector would see a further £21.6bn in cuts (in 2022/23 prices) as a result of these skewed projections.

Breaking it down by department in its findings, the NEF said the Department for Health and Social Care would see its budget fall by £8.8bn (based on 2022/23 prices).

Teachers would also take a hit as the Department for Education would see its real spending power fall by £3.8bn, according to the analysis.

The Home Office would see budgets fall by £700m, while the Ministry of Justice would lose £400m in real terms.

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After adjusting for population growth and a more realistic inflation forecast, the NEF claims total spending on services in 2027/​28 would be 12% lower compared with 2009/​10 in real terms.

The absence of public sector pay rises in Wednesday’s budget didn’t go unnoticed, and Institute for Fiscal Studies (IFS) director Paul Johnson explained why it has frustrated so many people.

“Recall that the government has spent months saying it can't find any money to prevent nurses and teachers getting very big pay cuts. He just found £6bn to cut fuel duties. That's a choice,” he tweeted.

Johnson added: "There was no funding to be found to improve the pay offer to striking public sector workers, where £6bn might have been enough to make an inflation-matching pay offer possible this coming year.

"That’s a political choice. Money for motorists, but not for nurses, doctors and teachers."

Read more: Budget 2023: How have benefits changed?

As he joined striking rail workers outside London Euston station, RMT union general secretary Mick Lynch described Wednesday’s economic package as a “budget for the rich”.

He told Sky News: “There'll be a continuous transfer of wealth from working people because the tax thresholds for ordinary workers have not gone up.

“But for the wealthy they can put up to £60,000 a year into their pensions scheme and they will have an unlimited tax break on their lifetime's earnings.

“It seems a peculiar step to take where you’re giving more money to the wealthy and taking money off the poor.”

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ITV News political editor Robert Peston suggested scrapping the lifetime savings limit for pensions and increasing the contributions limit – as was set out in the budget – is “bonkers”.

Pointing to the OBR’s predictions, he said this move will cost £1bn a year but will “only get 15,000 boomers and Gen X-ers into work”.

A Treasury spokesperson told Yahoo News: “We base policies on the independent forecasts of OBR, who are internationally recognised for their independent, credible, high-quality analysis.

“Total departmental spending will be around £100 billion higher in real terms by 2027-28 than at the start of this Parliament.”