Burnham warned ‘steady as she goes Budget’ would mean ‘chunky cuts’ to public services as inflation bites

Become an Independent member to bookmark this article Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Membership today. Join today Already a member? Log in Leading economists have warned Andy Burnham against a “steady-as-she-goes” Budget later this month, saying it would lead to ‘chunky cuts’ to public services because of inflation . The problem would be exacerbated if defence spending rises as ministers want , the leading think tank the Institute for Fiscal Studies (IFS) found. Following former chancellor Rachel Reeves’ battles to create enough fiscal “headroom” in the public finances, the IFS said new chancellor John Healey’s key problem would be tackling high inflation, driven in part by the war in the Middle East . Inflation will erode the budgets of government departments, creating the need for injections of potentially tens of billions of pounds or large cuts to some public services. Director of the IFS Helen Miller said: “John Healey likely faces a forecast in which borrowing is still expected to fall in coming years and the fiscal rules are still being met. open image in gallery ( PA Archive ) “Despite that, a ‘steady-as-she-goes’ Budget is not an option available to the chancellor. “Choosing to stay the course with the inherited tax and spending plans would mean allowing inflation to blow departments’ spending plans off course. “It would be a choice to tolerate chunky cuts to the quantity or quality of some public services – cuts that would be larger if defence spending was increased within existing totals.” The IFS said Mr Healey must also clarify the spending limits he is “willing to live within”, warning that his plan to meet the fiscal rules, and not spook the markets, would only be plausible if it is based on “credible spending totals”. open image in gallery Chancellor John Healey will set out his first Budget later this month (PA) ( PA Wire ) Unless ministers implement highly controversial cuts to health spending or to plans to increase defence spending remained unchanged, the figures imply real-terms cuts to other departments. These pressures mean avoiding cuts to departments’ budgets could require a combined top-up to day-to-day and investment spending of around £25bn in 2030–31, the IFS said. It added: “A choice to leave spending totals unchanged would implicitly be a choice to cut some budgets and allow the quality and/or quantity of some public services to fall.” “On the other hand, increasing spending to avoid cuts to budgets and fund higher defence spending could require tax rises or benefit cuts of around £35 billion. “The chancellor must decide where to land on that spectrum.” The think tank also said the chancellor’s plan to reduce borrowing in order to meet the fiscal rules will be predicated on the spending totals he sets out. “If John Healey sets out spending envelopes for public services that he would not be willing to live within, his plan for meeting the fiscal rules will not be credible,” it added. The IFS also stressed that “now is not a good time to substantially increase borrowing” as debt remains historically high, with interest costs having more than doubled as a share of GDP since 2019. open image in gallery Prime Minister Andy Burnham has said the Government ‘will not take risks with people’s living standards’ in the Budget (Stefan Rousseau/PA) ( PA Wire ) Ms Miller warned the chancellor does not have to set out detailed spending plans at the Budget. She said: “If he chooses the path of squeezing public spending, he should be transparent that there are tough years ahead for some public services. “Simply pencilling in implicit cuts that he has no intention of delivering would make the Budget a work of fiction.” Mr Healey is set to visit Bangkok for the IMF annual meetings this week, where he will tell international counterparts that major economies need credible plans to get borrowing under control. “The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home, but Britain and our allies can face up to these challenges together. “I will work with our international partners to keep trade moving, support families and businesses, and make Britain’s economy stronger and more resilient to deliver good growth in every postcode. “My Budget will build on this approach with fiscal discipline helping to deliver economic resilience. This means breathing space for today, and hope for the future.” Shadow chancellor Andrew Griffith said: “Higher borrowing costs and Andy Burnham’s unfunded spending commitments have swallowed up his headroom and created upward inflationary pressure. “Labour raised taxes by £66 billion in its first two budgets. Families cannot afford to be lumbered with even more tax rises at this Budget. Labour should cut welfare instead of dumping on working people as they have already done.” Green Party leader Zack Polanski said: “Economists are telling the Chancellor today that a steady-as-she-goes budget ‘is not an option’. “With three in five families already cutting back on spending, and many about to see a £300 increase in their bills in January, we’re challenging the government to take bold and immediate action on the cost of living. “For a start, this means moving more costs off energy bills, properly funding a national home insulation scheme, clamping down on profiteering by energy companies and rapidly scaling up cheaper, cleaner energy.”