Government departments could have to find big savings to fund increases to defence and childcare funding announced in the Spring Budget, experts have warned.
The Institute for Fiscal Studies said targeted funding settlements in these areas means spending plans for departments “look really quite tight” from 2025 onwards.
Chancellor Jeremy Hunt kept to the public spending budget he set out in his Autumn Statement, including a 1% overall rise from 2025. The extra funding for defence and childcare he announced yesterday will come from the same envelope.
The £11bn increase in the Ministry of Defence budget over the next five years includes a commitment to increase defence spending from 2% to 2.5% of GDP "as soon as fiscal and economic circumstances allow".
IFS director Paul Johnson said this morning that the figures mean "we're now going to spend more on childcare and defence, so less on everything else”.
Carl Emmerson, deputy director of the IFS, said the announcements could mean departments need to make cuts of around £18bn or 3.2% a year on average, affecting areas like local government, courts and prisons.
“We're now going to spend more on childcare and defence so less on everything else. The spending plans outside of childcare in defence are even tighter than those announced in November.
Outlining what might happen, Emmerson said: “You might think 'well, that's not too bad and you could increase budgets all by 1% a year'. But let's suppose the NHS actually sees budget increases in line with its long-run average – that's about 3.8% a year.
“Let's suppose, given that school numbers are falling, the government manages to freeze school spending. But that Jeremy Hunt is serious about his defence target, he wants to get to 2.5% of GDP at the end of this decade and he wants to do that in a straight line way. That means the defence budget would need 6.8%-a-year increases.
“Overseas aid spending would need to grow by 2.1% a year to keep at 0.5% of national income. And if we're going to pay for those childcare promises set out yesterday, that’s going to require spending increases of about 12.2% a year. What would that mean for everything else? It would mean cuts of about 18 billion pounds, 3.2% a year on average.
“That's pretty deep cuts to areas like local government, further education, courts, prisons, and the like.”
The Resolution Foundation has estimated the 1% target for public spending increases, coupled with yesterday’s announcements, could mean cuts of 10-14% for departments over the next four years.
“Given health, education, defence and aid spending are protected, Hunt’s indicative plans for the next parliament implies unprotected departments face 10% lower real day-to-day spending per capita by 2027-28 relative to today – rising to 14% if the newly announced aspiration for defence spending to rise to 2.5% of GDP was met over the next parliament,” it said.
The think tank warned this will pile on further pressure on public services, which are "now visibly under strain".
However, both think tanks were in agreement that keeping post-election departments increases to 1% on average is not realistic.
“These post-election plans are very far from plausible,” Resolution Foundation said.
This assessment echoed comments from the IFS's Johnson yesterday, who called the budget constraint a “very tough set of plans which are unlikely to be met".
Back in November, in response to the Autumn Statement,Johnson said that public spending plans beyond the election “should be taken with a very large pinch of salt”.
In the last four spending reviews, actual expenditure was on average 3.7% higher than the amount earmarked.