According to the IFS, Federal Chancellor Rishi Sunak will have “little leeway” in this month’s budget and expenditure review. Photo: Ian Forsyth / Getty
The UK government’s announced tax hikes that break the Manifesto are the biggest tax hikes in more than 25 years, but that will leave Chancellor Rishi Sunak “little leeway” in this month’s budget and spending review, according to the Institute for Fiscal Studies “(IFS ) Green budget 2021.
The tax increases will bring UK tax revenue to the highest sustained peacetime level and spending will be 42% of national income, more than 2% above pre-pandemic spending and the highest “normal times” since 1985. the IFS predicted.
The IFS said these were “more the inevitable consequences of aging populations and pressures on health and care spending than the consequences of the pandemic. Tax increases, which have always been inevitable, were smuggled in under the guise of a pandemic. “
NHS funding decisions are increasingly shaping the funding outlook for other departments as well as overall financial policy. Health care spending has increased, accounting for an ever-increasing share of daily public service spending – an estimated 44% by 2024/25, up from 42% in 2019/20, 32% in 2009/10 and 27% in 1999/2000.
If the new tax increases to fund health and welfare are to meet future pressures in health and welfare, the tax rate could more than double from 1.25% to 3.15% by the end of this decade, the IFS estimates.
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Daily public service spending is expected to increase 3.4% per year over the next five years, but Sunak will have to increase spending on public services other than health, defense, schools and aid less than he planned before the pandemic was over planned goal to reach the current budget balance, and could even result in some budgets being cut over the next two years, the Green Budget said.
The cuts to “unprotected” daily budgets in areas such as local government, education, prisons and the courts could exceed £ 2 billion (2.5%) next year.
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“These challenges are exacerbated by the fact that pandemic pressures outside the NHS have not been considered. Ongoing support for public transport companies and a catch-up package for schools alone could easily require additional spending of £ 3 billion each year, ”said the Green Budget.
The IFS assumes that borrowing will continue to be at least 20 billion from 2022–23. This would, however, still leave 89% of national income in 2025/26 – 17 percentage points of national income above the pre-pandemic share.
The high level of debt, as well as rising interest rates and retail price index (RPI) inflation in 2021, will drive projected debt interest spending by around £ 15 billion compared to the March budget forecast. Each additional 1% in interest rates increases annual debt interest expenditure by £ 10 billion. Each additional 1% of the RPI adds £ 6bn.
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“Rishi Sunak, a Conservative Chancellor, presided over an increase in the tax burden to record levels in the UK and an increase in the size of the state (public spending as a fraction of national income) to levels that have been around since the days of Ms. Thatcher ever-increasing spending on the NHS and an economy smaller than forecast before the pandemic mean it probably still lacks the money to spend on many other public services, “said Paul Johnson, IFS director and editor of the Green budget.
“According to key projections, after a decade of sharp cuts, there will be little or no leeway to increase spending on things like local government, justice and training. However, he is still faced with great uncertainty about the direction of the economy and thus about the state of public finances.
“He’s going to be hoping, contrary to all expectations, that stronger-than-expected sales growth over the next few years will help get him out of a hole that still looks like a medium-sized hole.”
