Continuing austerity ahead as Government grapples with £300bn public spending gap

Deeper cuts to public services lie ahead, with fiscal consolidation set to remain for a further seven years, warns new research from the National Institute of Economic and Social Research (NIESR).

The report, commissioned by tech specialist Sopra Steria, warns that while public spending as a share of GDP is now lower than post-war levels, further constraint is set to come if the government is to balance the budget while sustaining the UK’s public services.

NIESR’s analysis looks at so-called “warranted” spending – the amount needed to fund services sufficient to deliver quality public services, based on a counterfactual analysis that takes into account the future spending needed to afford an ageing population, the impact of Brexit and a political judgement on what can be afforded. This is, in effect, the minimum amount that the Government needs to spend to satisfy public and political demand.

It finds that shortfalls are already opening up between funding and “warranted” spending in education, public order and safety, health and social care. These pressures, together with the costs required to ease austerity and allay the impact of an ageing population means Government is facing an unaccounted for £300bn spend over the next seven years. In addition is the looming threat of hard Brexit, which could contribute a further £50bn towards the government’s public spending black hole up to 2025.

Dr Garry Young, Director of Macroeconomic modelling and forecasting at NIESR, observed that the Chancellor’s ambition to deliver a balanced budget by the next decade, would be hampered by several challenges ahead. He said: “While public borrowing has been reduced to sustainable levels, austerity fatigue has now set in. Combined with emerging recruitment difficulties and concerns about the quality of public services, there are already strong pressures for public spending to rise. On top of that, the demand for public services is increasing sharply to meet the needs of an ageing population.”

He added: “This new research highlights  shortfalls in spending  on critical social functions, including education, public order and safety, and health and social care. Real spending on housing and community activities was 37% lower in 2016-17 than in 2010-11, and spending on public order and safety was 17% lower – and deeper cuts lie ahead.

“Continued spending restraint would not be palatable unless government can find significant ways to improve efficiency and get better value for money.”

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