The PM and the Chancellor are confronted with tough choices ahead of the spending review (Image: Getty Images)
Britain is on the “road to bankruptcy”, a think tank has warned as ministers brace for Chancellor Rachel Reeves’s announcement on spending cuts. The Centre for Policy Studies accused the Government of dodging the chance to have a “fundamental reckoning with a state that overspends and underdelivers” as the June 11 spending review looms.
Fiscal policy researcher Daniel Herring warned: “With Government debt approaching 100% of GDP and the tax burden at its highest peacetime level, the UK is on a road to bankruptcy.” He claimed that instead of rolling back spending and lowering taxes, “it seems as though the spending review will be nothing more than an attempt to make the sums add up on a Treasury spreadsheet”.
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His warning comes as the respected Institute for Fiscal Studies said some areas will almost certainly “face real-terms cuts” unless the Government increases overall spending. It claimed cuts would likely involve “a combination of reductions in public sector employment, public sector pay and the range of public services the Government provides”.
The scale of the cuts can be reduced, according to the IFS, if the “NHS gets a low funding growth settlement”. But it warned this will “make it much harder to achieve the Government’s aspirations for reductions in hospital waiting times”. It added increasing defence spending “only makes these cuts elsewhere more likely”. Defence Secretary John Healey has said there is “no doubt” military spending will reach 3% of GDP by 2034.
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A key challenge for Ms Reeves is convincing the markets she has a grip on the national finances.
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The IFS warns: “If the Government promises cuts without a realistic plan for how to achieve them, this could undermine confidence in the credibility and deliverability of the government’s spending plans and, by extension, the fiscal forecasts.”
Tom Clougherty, of the Institute of Economic Affairs, said: “It’s now a quarter of a century since we last ran a budget surplus – despite the tax burden being at a record high. Low growth and an ageing population means things will only get worse unless policies change dramatically.
“If the Government is serious about sticking to its spending plans while also boosting funding for the NHS, defence, and capital investment, we will need to see serious cuts elsewhere. Ultimately, that has to mean the public sector employing fewer people and doing fewer things.”
There are strong expectations the Home Office will face cuts, with police chiefs warning of the extra pressures they will face as a result of early releases. Approximately 50,000 civil service positions could go by 2030 as Whitehall tightens its belt.
Charities have called for the Government not to backtrack on its multi-billion pound programme to insulate the homes of older and vulnerable people, and a post-Brexit fund which pays farmers to care for nature may be hacked back. Deputy Prime Minister Angela Rayner is reportedly fighting for more money for social housing.
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Reform UK deputy leader Richard Tice said: “It’s no wonder the British economy is in such a mess when successive governments squander taxpayer cash on things such as net zero which will cost our country trillions of pounds. This money should instead be used to cut taxes in order to support working people and drive economic growth.
“The only language this Government speaks is that of tax rises and stagnation. The real solution to the economic mess this country is suffering is to get rid of Labour.”
A Government spokesperson said: “The plan for change is delivering what matters for working people – cutting hospital waiting lists, getting control of our borders and tackling the cost of living. This Spending Review will scrutinise every single pound the government spends to ensure it’s delivering on our plan for change.”