Rachel Reeves could be forced to find more money to fix public services after her budget made a start at reversing the “unrealistic” and irresponsible spending plans of the Conservatives, the Institute for Fiscal Studies (IFS) has said.
Britain’s leading experts on the government’s finances said the chancellor’s tax measures on Wednesday had allowed for a substantial short-term increase in public service spending this year and next, but not thereafter.
Paul Johnson, the director of the IFS, said there would need to be “more to come” after Labour’s first budget in 15 years outlined £40bn of tax increases needed for the emergency cash injection.
Saying the spending plans amounted to “pretending” that Labour would splurge in the early years before reining in spending in future, he said: “That’s not going to happen. The spending plans will not survive contact with her cabinet colleagues.”
“I am willing to bet a substantial sum that day-to-day public service spending will in fact increase more quickly than supposedly planned after next year,” he added.
The IFS said that while the spending increases announced by Reeves appeared big relative to the previous government’s plans, this was in large part because “their plans were unrealistic”.
Johnson said: “Despite the apparent scale of the increases, this is not going to feel like Christmas has come for the public realm.”
In her budget on Wednesday, the chancellor set out a real-terms increase in day-to-day spending on public services of 4.3% this year and 2.6% next year, before pencilling in a rise of 1.3% each year.
“It would be odd to increase spending rapidly only to start cutting back again in subsequent years,” Johnson said.
In the final two budgets set by the Conservatives, Jeremy Hunt, the former chancellor, announced sweeping tax cuts despite ballooning pressures on public services and soaring debt interest payments.
Johnson said: “To cut £20bn from employee national insurance last year in the face of known fiscal pressures was not responsible.”