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The Budget. An Independent view

March 12, 2020 11:05 PM

ifsThe Institute of Fiscal Studies ( IFS) the well respected independent organisation has completed its review of the Budget and has come up with some interesting conclusions, not all of which were picked up in the immediate aftermath of the Chancellors speech.

The full report for those who want to read it is at https://www.ifs.org.uk/budget-2020 . What follows is an abbreviated summary of the key points

After complimenting the Government on the scale and breadth of its response package to the Coronavirus outbreak recognising there may be more required if the outbreak becomes really serious, the IFS went on to say:

* Growth forecasts are very weak even before factoring in possible longer term effects from the coronavirus. Projected growth rates averaging barely over one and a half per cent a year for the next five years are feeble and indicative of an economy that is not in a robust position for coping with shocks like the coronavirus. The Forecasts continue to assume an orderly move to a free trade agreement with the EU something Government statements suggest cannot be assumed.

* Overall spending will rise by £76 billion or 9% in real terms between 2019-20 and 2023-24, largely paid for by extra borrowing. This will mean the size of the state, measured by looking at public spending as a fraction of national income, stabilising at nearly 41% of national income. That is above its pre-crisis level and bigger than at any point between the mid 1980s and the start of the financial crisis.

* The investment spending plans are genuinely very big. This will take investment spending to its highest level in modern times. The challenge will be to ensure this money is well spent. That is a big challenge.

* The current spending plans are nothing like as generous as they appear. Average annual increases of 2.8% sound substantial. Take account of the need to replace EU funding, and factor in planned increases for health, schools, defence and overseas aid, and there is relatively little here for other departments and plenty of public services which will not be enjoying much in the way of spending increases over the next few years.

* Current spending plans also look suspiciously front-loaded. Spending increases pencilled in for the next two years are much bigger than what follows. This could suggest top ups in later budgets and hence a need for more tax or more borrowing.

* Current spending per person for most public services will remain well below 2010-11 levels in 2024-25. Outside of health though spending per person will still be 14% lower, and around 19% lower once you account for the spending that is simply replacing EU funding.* That still means borrowing peaking at £67 billion, nearly £30 billion above its 2018-19 level.

* Underlying debt is forecast to rise slightly relative to national income. If growth turns out less positive than expected as a result of coronavirus, Brexit or for any other reason, then debt could easily start moving decisively upwards.

In summary therefore the Conservatives have done as they promised on public investment but many services will continue to be under-funded and at austerity levels. Even more worrying should the current virus issues continue for a significant period or we fail to get a free trade deal with the EU there is no fat in the system to cope with a shock. There is also insufficient investment in the budget to keep us on track to be carbon neutral by 2025

Having endured years of lectures from the Conservatives about the need to live within our means as a country this budget represents a high risk punt. No wonder Sajid Javid the previous Chancellor and Theresa May both voiced concerns yesterday in parliament