U.K.’s Go-Big Budget Masks Cuts Seen as Austerity 2.0

(Bloomberg) -- Prime Minister Boris Johnson's government is being accused of dropping its pledge to end austerity after cutting a further 4 billion pounds ($5.8 billion) a year for departments in the budget.

The reductions in day-to-day spending plans unveiled on Wednesday by Chancellor of the Exchequer Rishi Sunak set the stage for a challenging review of resources for government ministries later this year. It adds to savings of over 12 billion pounds announced just four months ago and suggests a squeeze for everything except health, defense and education.

Johnson swept to power in 2019 on a pledge to “level up” poorer regions and end years of cuts introduced by then finance minister George Osborne to tackle what was at the time a record budget deficit following the financial crisis. But his plans have been made more difficult by the even bigger levels of borrowing to get the country through the coronavirus pandemic.

“It's not going to feel like the end of austerity if you run a prison or bits of local government,” Torsten Bell, chief executive officer of the Resolution Foundation research group, said in briefing Thursday. “On public services, it's going to feel like George Osborne is still around.”

Sunak combined stimulus this year with plans for spending cuts and billions of pounds of tax increases on companies and individuals in the biggest revenue-raising budget since 1993. The overall tax burden is on course to reach the highest since the late 1960s, according to the Office for Budget Responsibility.

In an analysis of the budget, the Institute for Fiscal Studies said so-called unprotected areas will see their budgets fall by around 1% in real terms in 2022-23, adding to the plight of departments such as the Home Office and the Ministry of Justice that bore the brunt of Osborne's austerity drive.

“It's going to be something that feels a bit like austerity for at least some public services if we are going to keep to these public spending plans,” said Deputy Director Carl Emmerson. “It will be cuts coming on top of that very tight period of spending restraint for those areas.”

Some questioned whether the current spending plans can be delivered, given the pressure to increase resources for the National Health Service and education in light of the pandemic. That could mean that even larger tax rises are required in the future to put the debt burden on a downward path.

In broadcast interviews on Thursday, Sunak defended his budget, saying the Conservative government has increased day-to-day and capital spending by almost 70 billion pounds since being elected.

“That's a huge increase, delivering on our promises for more nurses, more police officers, more hospitals, leveling up across the country,” Sunak told BBC Radio. “Over the course of this parliament you will see public spending grow at what are historically high levels as we deliver on all of those commitments.”

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