Rishi Sunak’s plans to cut £16bn from public spending will cause ‘real additional pain’

Andrew Woodcock
·6-min read

Rishi Sunak’s plans to cut £16bn from public spending “do not look deliverable without considerable pain”, the director of the Institute for Fiscal Studies has said.

In a Budget which saw the chancellor turn “from Santa to Scrooge”, Paul Johnson said Mr Sunak added £4bn of cuts to the £12bn outlined in the autumn spending review, and made no provision for the continued costs of the coronavirus pandemic to the NHS beyond next year.

But he said the spending figures looked “implausibly low” and accused the chancellor of failing to “level with” the public and passing the £4bn cut off as a technical adjustment resulting from changes to inflation.

Mr Sunak’s longer-term fiscal package amounted to almost £50bn of belt-tightening compared to pre-Covid plans, while his “screeching U-turn” on longstanding Conservative low-tax policy would deliver “the highest sustained tax burden in UK history”, said the IFS boss.

And the chancellor’s “remarkable” decision to hike corporation tax by six percentage points to 25 per cent from 2023 was “something of a gamble … that it won’t have too terrible an effect on investment”.

Snap polls following Wednesday’s Budget statement found broad backing for the package, which brought total spending on coronavirus support to £407bn, to be paid for with hikes in corporation tax and a freeze on income tax personal allowances.

One survey for Savanta ComRes found 60 per cent satisfied and 11 per cent dissatisfied with Mr Sunak’s plans, while another by YouGov found 69 per cent in favour of the corporation tax rise for businesses earning a profit over £250,000.

But there were signs of discontent on the Conservative right, with veteran backbencher Sir Christopher Chope telling the House of Commons that public support for the corporation tax rise “illustrates the extent of the economic illiteracy that sadly abounds”.

The Centre for Policy Studies, a right-of-centre think tank, said the combined effect of the end of Mr Sunak’s “super-deduction” mechanism and the deferred increase in corporation tax in 2023 will see the UK plummet from 7th to 29th in the rankings for most competitive corporate tax system.

Torsten Bell, chief executive of the Resolution Foundation economic think tank, said the Budget marked a “very big change around” in the Tory approach to taxation.

Business groups had not complained too strongly because the tax rises were still some way off, he said, but “I would be amazed if in two years the CBI is not saying ‘it’s absolutely bonkers that we are raising corporation tax to 25 per cent”.

Mr Sunak earlier defended the plans to freeze income tax thresholds, which will drag 1.3 million low earners into the tax and increase the number of people paying the higher 40 per cent rate from 3 million in 2010 to around 5 million – one in six income tax payers – by 2026.

The chancellor told Sky News: “Crucially, those on higher incomes are affected more by this policy – it is a very progressive policy and that is something that has been noted by independent think tanks that are respected, like the IFS and others, who have made the point that the richest 20 per cent of households … will end up contributing 15 times more than those on the lowest incomes.

“That is why this is a fair way to help solve the problems that we need to.”

Labour said voters would be “astonished” by the £30bn cut in day-to-day spending at the Department for Health and Social Care.

Speaking at the Royal Derby Hospital, Sir Keir Starmer said: “What’s coming next is the backlog of cases – 4.5 million people on waiting lists ... so the NHS is going to have a really hard year and I think most people will be pretty astonished that the funding is being cut.”

But Treasury sources said the figure reflected the expected decline in emergency spending on coronavirus.

And Boris Johnson, the prime minister, insisted on a visit to Teesport that the government had already invested “huge quantities” into health and social care.

“About £52bn went into the NHS just to help cope with the pandemic, £1.5bn into social care, and £35bn to support local councils in all sorts of ways,” he said.

Pressed on why there was no pay rise for health and social care workers in the Budget, Mr Johnson said: “A lot of these are obviously in the private sector, the care home workers.

“What we’ve done is had record increases in the living wage, and again the living wage will be going up, which will be supported by the government, again in April. Our debt to those workers is massive.”

Paul Johnson said it was “remarkable” that Mr Sunak had decided to end the £20-a-week uplift to universal credit in a sudden cliff-edge in October, rather than easing the shock with a phased withdrawal.

Details of where the spending axe will fall were not set out in Wednesday’s Budget.

But the IFS director said that the protection offered to spending on the NHS, schools and defence meant that other areas, such as justice and local government would once again face real-terms cuts after a decade of austerity.

Although the Treasury insists that the additional £4bn of reduced spending was a technical change to take into account lower inflation forecasts, Paul Johnson said that in reality the cut will cause “real additional pain”.

And he asked: “Are we really going to spend £16bn less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022. I’d say no, of course not.”

With pressure to top up NHS spending, pay for catch-up learning in schools, clear backlogs in the court system and fix social care, the planned spending cuts “do not look deliverable, at least not without considerable pain”, said Paul Johnson.

Mr Sunak’s failure to identify where he will find money for post-pandemic priorities like reforming social care and reducing inequality was “a big hole” in the Budget, said the IFS boss.

“No money to deal with post-pandemic priorities. No policies to deal with the inequalities that have opened up over the last year between rich and poor, old and young, more and less well-educated.

“This is a big hole in the chancellor’s – and the government’s – policies, a hole which needs to be filled and soon, if we are not to suffer a much worse hangover from this crisis than need be the case.”

Anneliese Dodds, the shadow chancellor, said the Budget was “unravelling fast”.

“We need to learn the lessons of this pandemic, not go back to the insecurity of the past,” she said. “But this chancellor has the wrong priorities and is totally out of touch with what this country needs.

“This Budget was a test of character for Rishi Sunak. He failed it.”

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