Public spending cuts are unlikely to be anywhere near the level of austerity of those carried out under the coalition government, Jeremy Hunt has said, but warned “eye-watering" decisions nevertheless lie ahead.
Following the chancellor’s announcement yesterday morning, which reversed most of his predecessor Kwasi Kwarteng’s tax-cutting mini-budget and shrank universal energy bills support, Hunt revealed further details including an Economic Advisory Council.
The chancellor gave no details on the savings departments will have to make but said “very difficult decisions” will need to be taken. It is expected that departments face billions of pounds of cuts.
But Labour shadow chancellor Rachel Reeves accused Hunt of playing “a big part of austerity season one” and now turning to “austerity season two” as the “cure” for Liz Truss and Kwarteng’s failed budget.
Hunt was culture secretary from 2010, when the the swathes of cuts administered mostly under the Conservative-Lib Dem coalition government began, until 2012. He then spent six years as health secretary.
Hunt denied claims his budget would herald a “new wave of austerity” but said decisions of “eye-watering difficulty” would need to be taken over the next few weeks.
“Every single one of those decisions, whether reductions in spending or increases in tax…will prioritise the needs of the most vulnerable,” he added.
Responding to concerns from Labour shadow MP Angela Eagle that public spending cuts could be “at least the same size as the first round of austerity from 2010 to 2015”, Hunt said he did not “expect it to be on the scale” that she suggested.
“I was a cabinet minister in 2010 when we had very difficult decisions to take in the wake of the financial crisis, and my department’s budget was cut by 24%. I do not believe that we are talking about anything on that scale; I think it likely that cash spending will continue to go up,” he said.
Departments' budgets were cut by £41bn in real terms between 2009-10 and 2012-13, according to the Institute for Fiscal Studies, with a further £4bn of cuts following between 2012-13 and 2016-17.
Four years ago, then-prime minister Theresa May announced what she called the end of austerity. Department budgets have since begun to slowly increase, but the IFS has now warned that public service cuts of £35bn could be needed to get borrowing down to acceptable levels.
While Hunt’s U-turns yesterday are expected to save around £32bn over the next five years, Office for Budget Responsibility forecasts have reportedly shown a £70bn fiscal hole which means a further £38bn may need to be found.
A leaked Treasury letter last week suggested departments could be asked to find savings of around £7bn in total from capital budgets to be returned to the Treasury. However, cuts are now likely to be higher. A reductions in defence spending is now also potentially on the table, despite an earlier pledge from Truss to increase it by 2.5% of GDP by 2026.
Hunt did not confirm when public spending plans, which are reportedly being worked up by departments this week, will be announced.
But he said the early announcement of some elements of the government’s medium-term fiscal plan, which will be revealed in full on 31 October, aimed to “quickly to give certainty to the markets” after the jitters that followed Kwarteng’s short-lived proposals.
The looming budget cuts will come in the wake of an Institute for Government and Chartered Institute of Public Finance and Accountancy report which warned that there is "no meaningful fat to cut" from already-underfunded public service budgets.
Seeking council
In one of the few fresh detailsin the Commons, Hunt revealed plans for an Economic Advisory Council which will provide him with independent expert advice, including its first four members.
These are: former George Osborne chief of staff Rupert Harrison; Gertjan Vlieghe from Element Capital; Sushil Wadhwani of Wadhwani Asset Management; and Karen Ward of J.P. Morgan.
Harrison was Osborne's chief of staff from 2006 to 2015, including the early-2010s austerity period. He is a portfolio manager for American investment management firm Blackrock.
Ward, who is chief market strategist at JP Morgan, previously worked as chair of the Council of Economic Advisers under former chancellor Philip Hammond.
Vlieghe is a member of the Bank of England’s Monetary Policy Committee,while Wadhwani is a former member, serving the committee from June 1999 to May 2002.
'The same failed policy'
Following the announcements, Prospect warned that the new chancellor was bringing back "the same failed policy of slashing public spending".
Referring to reports departments could be asked to deliver reduced budgets by Friday, the union's general secretary Mike Clancy said: “In recent months the government threatened 91,000 civil service jobs cuts. Then rowed back. Now in a blind panic they are calling for a plan for big cuts by Friday without any sense of what services the government should stop providing. This is no way to run the country.
“The public will be left fearing for the future of their services, and public servants are being set up to pay the price for a disaster made entirely in Downing Street.”