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Monday, February 11, 2019

Can our public services survive another budget?

As a local councillor I am currently in the process of scrutinising Swansea's latest budget proposals. Like other councils we have been badly hit by cuts in funding, though we remain better off than councils on the other side of Offa's Dyke due to the protection offered by past Welsh Governments.

Unfortunately the current Welsh Government has failed to pass on the 1% real term increase in its budget for next year, and that has added to the difficult decisions that are having to be made. But fear not, the Tories have promised to end austerity, and surely that means more money for future years. Or does it?

In The Times the Institute for Fiscal Studies (IFS) has warned that the chancellor will have to find billions of pounds in next month’s spring statement if he is to spare public services another brutal squeeze and deliver on his promise to end austerity.

They say that departments excluding health, defence and overseas aid face more cuts under the government’s spending plans, on top of the £40 billion they have endured already. That will knock on in the money allocated to the Welsh Government, and put local services under even more pressure.

The IFS say that to ease the pressure and allow spending to rise in line with both inflation and population growth, Philip Hammond will need to find an extra £5 billion by 2023-24. To do so he will have to raise taxes, cut other spending or borrow more.

The paper says that Hammond has very little wriggle room. He has promised to use some of the £15 billion of borrowing headroom against his fiscal rules if a Brexit deal is agreed but there is no guarantee it will have been in time. Until then, he wants to keep it in reserve for no-deal contingency plans.

In addition, a recent reclassification of student loans will also increase borrowing by £12 billion, virtually wiping out his war chest, making it difficult for the chancellor to borrow more without looking fiscally irresponsible:

Last week the National Institute of Economic and Social Research suggested that he might have to abandon his rules. The IFS noted that “the chancellor remains some way off achieving his stated overarching fiscal objective of eliminating the deficit entirely by the mid-2020s”.

Public services would face an intensified squeeze if there was a no-deal Brexit, the IFS added. “This would mean lower spending and higher taxes in the medium term,” it said. In the short term, it would trash the government’s fiscal plans as it “might well raise spending to support the economy, mitigate the impacts for the worst-hit sectors or areas and provide funding to departments now required to perform additional functions, notably at the border”.

It added: “Any boost to spending would be temporary, and further austerity would eventually be required.

We are at a crossroads. The IFS analysis suggests yet more years of austerity for many public services, albeit at a much slower pace than the last nine years, unless the Chancellor is prepared to step up to the mark and deliver on his rhetoric.  The question is whether public services can survive any further cuts.
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