Austerity warning for public services after tax cuts

The cost of the tax cuts in the Autumn Statement will hit spending on public services, think tanks have warned.

Spending is set for the biggest cut - factoring in rising prices - since the coalition government's austerity measures, the Institute for Fiscal Studies and Resolution Foundation said.

The Resolution Foundation said the cuts were "completely undeliverable".

Downing Street has insisted that departmental spending will continue to increase in the coming years.

In Wednesday's Autumn Statement, Mr Hunt said he would cut National Insurance from 12% to 10% from January, at a cost of £10bn.

He also extended or made permanent several tax breaks for business.

But the Institute for Fiscal Studies (IFS) said the chancellor was able to do this because he had not increased spending on public services.

When factoring in rising prices, that meant that unprotected departments would face budget cuts of more than £20bn by 2027-28.

"Put another way, the tax cuts are paid for by planned real cuts in public service spending," IFS director Paul Johnson said.

During the austerity years, former chancellor George Osborne and his successors made more than £30bn in spending reductions to welfare payments, housing subsidies and social services.

Ahead of the last general election in 2019, former Prime Minister Boris Johnson promised there would be no return to austerity.

But the IFS said that unprotected public services, including courts, prisons, further education, local government, housing and others would see a cumulative 13% cut in day-to-day spending - when taking the impact of inflation into account - between next year and 2029.

This would be "broadly in line" with what was delivered under the Conservative-Liberal Democrat coalition government's austerity plan in 2010-15, it said.

"We've seen councils in financial difficulty, maybe we'll see more of that. We've seen quality of service in prisons and the court system deteriorate, maybe there will be more of that," said Ben Zaranko, a senior research economist at the IFS.

The Resolution Foundation, which campaigns for better living standards for those on low and middle incomes, came to a broadly similar conclusion and called the plans "implausible".

"The idea that there is as much scope to cut spending today as there was in 2010, given the deterioration of public services is far-fetched," it said.

The think tank also said the government would set a "grim" new record for living standards going down in this parliament.

It said that despite the "tax-cutting rhetoric" of the Autumn Statement, there had already been £90bn of tax rises announced by the government - so taxes would rise by the equivalent of £4,300 per household between 2019-20 and 2028-29.

It added that people's purchasing power had been stagnating for 20 years, and that recent pay rises just reflected the reality of rising prices.

By the end of this parliament, it expects households to be £1,900 worse off than they were at the start.

On Wednesday, the Office for Budget Responsibility (OBR), the government's economic forecaster, said that the UK's tax burden was going up "to its highest level in the post-war era".

"Over the medium term, the combination of higher inflation and frozen tax thresholds means that the tax burden for this country is going up," boss Richard Hughes said.

Responding to claims that departmental spending would fall, the prime minister's spokesman said total departmental spending would be "£85bn higher in real terms over the next five years compared to the start of the parliament".

Mr Hunt said his tax cuts would put "more money in people's pockets".

"Taxes have gone up, but I want to start bringing them down," he added.

He said the government had been right to help families during the coronavirus pandemic with the furlough scheme, and with energy bills during the cost of living crisis.

Mr Hunt added that he had chosen to cut National Insurance to get more people into work, and that the measure would help fill one in 10 job vacancies.

He also said the government planned to boost the economy by making business more competitive. "If we want to bring the tax burden down, we have to grow the economy."