Chancellor Rachel Reeves’s first budget, hailed as delivering the most substantial public spending boost in over a decade, may still fall short of what’s needed to protect vital services, according to a sobering analysis by the Institute for Fiscal Studies (IFS).
The respected think tank warns that an additional £9 billion in tax hikes could be necessary to prevent real-terms cuts to areas like local councils, justice, and prisons after the next financial year. This stark assessment comes despite the £40 billion of tax increases already laid out in Reeves’s budget plans.
Short-Term Relief, Long-Term Concerns
While acknowledging the substantial short-term funding injection provided by the Chancellor, IFS director Paul Johnson cautioned that the spending plans beyond next year amounted to “pretending” that Labour would splurge early on before tightening the purse strings later.
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.
– Paul Johnson, IFS Director
Johnson argued it would be odd to rapidly ramp up spending only to start cutting back again in subsequent years, suggesting Reeves’s longer-term plans were unlikely to survive contact with her Cabinet colleagues’ demands.
Funding Boost Relative to “Unrealistic” Tory Plans
The IFS analysis underscored that while the spending increases announced by Reeves appeared significant compared to the previous Conservative government’s budgets, this was largely because “their plans were unrealistic”. Johnson pointed to the Tories’ move to slash £20 billion from employee national insurance last year in the face of known fiscal pressures as an example of irresponsible budgeting.
Gambling on Growth or Clearing Backlogs?
According to the IFS, much of the Chancellor’s £40bn tax raid will be swallowed up by efforts to steady government finances rather than driving major public service improvements. They suggest Reeves is taking a gamble that either:
- The short-term public spending splurge can clear backlogs and drive down future costs, or
- Stronger economic growth will materialise to bail out the government’s fiscal position
However, Johnson warned that if growth fails to pick up and no other forecast changes emerge, “other taxes will likely have to rise” to make the numbers add up.
Tough Choices Ahead for Protected Budgets
The detailed IFS analysis lays bare the tough fiscal choices still confronting the Chancellor. Real-terms spending increases of 4.3% this year and 2.6% next year give way to a measly 1.3% per annum in subsequent years under current plans.
Unless these plans are revisited, some unprotected departments could face effective budget cuts at a time when public services are already under immense strain. Reeves may be forced to contemplate deeper tax hikes or spending cuts elsewhere to avert a fresh austerity drive in these areas.
No Spending “Christmas” for Public Services
For all the fanfare around its record spending increases, the IFS’s sober assessment suggests the budget will not feel like a fiscal “Christmas” for the public realm. The Chancellor still faces an uphill battle to repair the damage inflicted by years of austerity and a legacy of under-investment in critical services and infrastructure.
As Reeves works to balance the books while shoring up creaking public services, the spectre of stealth austerity continues to loom. The IFS analysis serves as a stark reminder of the fiscal high-wire act ahead – and the potential need for further tax rises if growth fails to ride to the rescue.
