Inflation set to wipe out billions promised for public services

Inflation set to wipe out billions promised for public services
Inflation set to wipe out billions promised for public services

Arabnews24.ca:Tuesday 9 August 2022 09:05 PM: The high rate of inflation will wipe out a significant chunk of planned real-terms spending rises for public services, according to the Institute for Fiscal Studies.

It estimates the Treasury will have to find an extra £8bn this financial year to compensate for the impact of inflation.

The IFS said the boost to public services from government spending plans is now "considerably less generous" than originally intended last autumn.

The think tank estimates that the average, real-terms, growth rate in day-to-day public service funding for the next three years has dropped from 3.3% under original plans to 1.9% per year.

In other words, higher inflation is expected to "wipe out" a significant chunk - more than 40% - of planned real-terms rises, it said.

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To remedy this, the IFS estimates that the Treasury would need to top up spending plans by more than £8bn this year, in 2022/23.

It would then need to do the same by about £18bn in each of the next two years, 2023/24 and 2024/25 - and even this is "likely to be an underestimate" for what is required, the think tank said.

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Ben Zaranko, senior research economist at the IFS, suggested the two remaining candidates to be the next prime minister, Liz Truss and Rishi Sunak, should set out their plans to combat the challenge.

"Higher inflation makes the government's plans for public service spending less generous than they were originally intended to be," he said.

"Choosing not to compensate departments for unexpectedly high cost pressures would be one possible response to a cocktail of global economic shocks that leave us poorer as a nation, but would heighten the considerable pressures on public services heading into the winter.

"We've heard a great deal about the Conservative leadership candidates' plans for tax cuts.

"Given the inflation-induced squeeze on departments, and given the clear signs of strain within the NHS in particular, it might make sense for Mr Sunak and Ms Truss to also outline their plans and vision for public spending and public services."

Read more: Sunak promises more for each household's energy bills as Truss refuses to commit to extra support

A spokesperson for the Sunak campaign insisted the former chancellor had been "consistent and clear" about the "pernicious" threat of rising prices.

They accused Ms Truss of concocting tax-cutting plans that would "put fuel on the inflation fire".

The Treasury said the government is "taking important steps to get inflation under control".

"The plans announced at Spending Review 2021 mean that total departmental spending is set to rise to £566 billion in 2024-25 - a cash increase of £150 billion," a spokesperson said.

"The government has a continued focus on delivering our priorities efficiently and within budget, providing good value for money for the taxpayer.

"The government is taking important steps to get inflation under control through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost our productivity and growth."

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