Chancellor’s tax cuts to be paid for with public service austerity, says IFS

Whitehall departments with unprotected budgets are facing cuts after the autumn statement, according to economists (John Stillwell/PA)
Whitehall departments with unprotected budgets are facing cuts after the autumn statement, according to economists (John Stillwell/PA)

The Chancellor’s “substantial tax cuts” for workers and businesses in the autumn statement are set to be “paid for by planned real cuts in public service spending”, according to a think tank.

The Institute for Fiscal Studies (IFS) said, under the future spending plans proposed by Jeremy Hunt at the autumn statement, £20 billion would have to be found in 2028-29 to avoid cuts to unprotected departments, covering areas such as local government and justice.

Institute director Paul Johnson told a post-statement briefing on Thursday that the Chancellor had “pencilled in numbers that suggest he wants to try to wrestle the size of the state back down towards where it was in 2019” before the coronavirus pandemic.

He said: “Given the demands of servicing our debt, and presumably paying for more healthcare and pensions, achieving that will require some sharp cuts in many areas of public spending.”

Mr Johnson’s colleague, research economist Bee Boileau, said: “The tight spending settlement set out after 2025 means really significant cuts for unprotected departments.”

Mr Hunt used his Commons statement on Wednesday to lower the 12% national insurance rate on earnings between £12,570 and £50,270 to 10%, saving someone earning £35,000 more than £450.

A tax break allowing firms to cut their bills if they invest in new equipment will also be made permanent.

When speaking to broadcasters on Thursday, the Chancellor denied that his decision to reduce taxes would result in worse public services.

Jeremy Hunt
Chancellor Jeremy Hunt gave his autumn statement on Wednesday (Oli Scarff/PA)

It comes after think tanks such as the IFS and the Resolution Foundation pointed out he had in effect found £20 billion for tax cuts by choosing not to protect some departments against the growing costs of inflation.

Ben Zaranko, a senior research economist at the IFS, said councils, prison services and courts — which are currently working through a post-pandemic backlog — and the Department for Work and Pensions “might be squeezed” after the election under the Chancellor’s proposals.

“It seems inconceivable that you could make cuts of 2% or 3% per year to those services and not have some impact on quality,” he told a briefing.

“We’ve seen councils in financial difficulty — maybe we will see more of that. We’ve seen the quality of service in prisons and the court system deteriorate — maybe there will be more of that.

“But unless you can find some magnificent, heroic productivity improvements in those areas, I think it seems likely that the range and quality of public services would have to suffer at some point.”

Mr Johnson said the “challenge of sticking” to the Conservative Government’s public spending plans “will be really very serious”.

“I think the chances that we will actually get public spending service cut in the way that you’ve seen in the figures that have been presented are pretty small,” said the senior economist.

In his conclusion, Mr Johnson said the autumn statement had left “a lot of questions unanswered” and that answers on tax and spending plans were unlikely to be given until after the next election, which is expected to take place next year.

With the possibility of a change in government given Labour’s healthy opinion polls lead over the Tories, the IFS director added: “I’m not sure I’d want to be the chancellor inheriting this situation in a year’s time.”