THE TRADES UNION CONGRESS (TUC) has published analysis by the New Economics Foundation (NEF) showing that Rishi Sunak’s government has hidden forthcoming cuts to departmental budgets of £28 billion a year (2022/23 prices) by 2027/28.
Ministers have had the opportunity to do this because the Office for Budget Responsibility is assuming inflation will fall well below the Bank of England’s target of 2 per cent from 2024/25 – including assuming negative inflation in 2025/26.
But if inflation were to fall that low, the Bank of England would be expected to step in to maintain inflation at or above the target of two per cent.
The NEF analysis looks at what would happen if inflation does not fall below the two per cent target. The work reveals a further £28 billion in cuts to annual departmental budgets by 2027/28, compared to the level of real-terms spending claimed by government at the autumn statement last October.
Within the £28 billion of cuts:
- The Department for Health and Social Care would see its budget fall by £11.6 billion (2022/23 prices), reducing funds for nurses, doctors, and other hospital staff.
- The Department for Education would see its real spending power fall by £4.9 billion, reducing funds for courses, teachers, and school staff.
- The Home Office would see budgets fall by £900 million, reducing funds for policing and crime prevention services.
- The Ministry of Justice would see budgets fall by £600 million, reducing spending on staffing prisons, courts and delivering legal aid.
After adjusting for population growth and a more realistic inflation forecast, the NEF analysis shows that total spending on services in 2027/28 would be 14 per cent lower compared with 2009/10 in real terms. Even departments that saw some level of protection during the austerity years would be essentially no better funded on average in 2027/28 than they were in 2009/10, and departments that saw no protections would have less than two-thirds of the funding they had in 2009/10.
The £28 billion cut would come in addition not only to the further discretionary cuts announced at the Autumn Statement, but also the failure to protect budgets against the effects of rising inflation during the present spending review period. The combined impact of all these factors would leave the level of spending on public services in 2027/28 a total of £79.9 billion lower than implied by the original 2021 spending review plans.
Public service funding for a stronger economy
The IMF have suggested that funding boosts for public services can have multiplier effects that increase GDP by £1.30 for every £1.
The TUC says that with the UK on the brink of recession, the government should act quickly to take advantage of the multiplier effect to stimulate the economy and prevent a recession occurring this year. Otherwise, there will be damage from businesses folding and higher unemployment.
The union body says that, as a minimum, the Chancellor should use the budget to:
- Give all public sector workers a pay rise matching inflation to prevent more workers from leaving public services.
- Cancel the proposed £28 billion in real-terms cuts for public services and guarantee that there will be no return to austerity.
- Fund a recruitment drive to end staff shortages in public services.
- Set out fully-funded plans and a workforce strategy for the years ahead to meet the Prime Minister’s commitment to deliver “world class public services”.
This funding will also strengthen the economy through the rest of the decade by allowing public services to respond better to the needs of working families and businesses.
The benefits to the economy include:
- Healthcare: working people are less likely to spend time off work with health problems when GP appointments are readily accessible and there are not long waiting lists for hospital treatments and mental health referrals.
- Transport: good quality and affordable public transport reduces congestion, speeding up commuter travel, material supply chains and transport of goods to market.
- Childcare: when free and dependable childcare is available, parents are better able to return to and remain in work.
- Social care: fewer people need to leave the labour market, or reduce working hours, to provide care for family members when social care services provide good quality support.
- Education: world class schools, further and higher education result in a higher skilled workforce, leading to greater productivity, innovation, and inward investment.
- Private sector investment: companies making choices on where to locate and invest are more likely to choose the UK if they can benefit from world class public services.
The TUC General Secretary, Paul Nowak, said: “Good schools, hospitals, childcare, and transport are vital not only for families, but for businesses too. But the Tories keep attacking them – that’s a big part of why our whole economy is falling behind.
“With a recession already expected this year, a new round of austerity would make a bad situation worse. The Chancellor should instead use the power of government to lift us up and out of Britain’s economic slump.
“A budget boost to public services – including staff pay – can keep us out of recession this year. And it can lay the foundations for a stronger economy in the years ahead – world class schools, hospitals without waiting lists, funded childcare, and modern transport systems.”
Alfie Stirling, Chief Economist and Director of Research at NEF, said: “The government is exploiting a curious feature of the OBR’s forecast model, which can see projected inflation fall well below the level that policymakers at the Bank of England are ever likely to allow in practice. It allowed the chancellor to play smoke and mirrors with the future of public services last autumn, claiming that budgets would continue to rise in real terms, despite tens of billions a year in fresh cuts.
“There is no serious or credible justification for the government’s current plans. Consecutive UK chancellors have already put the country through a decade of austerity, which means we know exactly how it ends: near stagnant earnings growth, threadbare public safety nets and the first stall in life expectancy on modern record.”
* Source: Trades Union Congress