Frances Ball 3 Sep 2019 11:54am

Chancellor needs extra £5bn to fund spending promises

The Institute of Fiscal Studies (IFS) has raised concerns that the government’s sudden Spending Review is “hurried and overtly political”

Sajid Javid, the chancellor, will present the government’s Spending Review on Wednesday. The prime minister Boris Johnson said yesterday that the review of departmental funding for next year will be the “most ambitious spending round for more than a decade”.

According to the IFS, the Treasury will need to find an extra £5bn next year to fund the promises that Javid will outline tomorrow, “just to avoid cuts to other public services”.

The IFS estimates that government spending commitments on priority areas would require an increase of day-to-day spending by £9bn next year. This means that spending next year will need to be between £4-5bn higher than the plans in the Spring Statement suggested.

Figures from the Office for Budget Responsibility (OBR), published around the Spring Statement, gave the government £15bn of leeway against its target to keep borrowing at below 2% of national income next year.

With £15bn of headroom in mind, Javid said last week that spending this year would “meet the current fiscal rules”.

However, this spending round will not be accompanied by updated OBR forecasts, which are not due until later in the year. When they arrive, the IFS has pointed out, they are likely to “reflect a deterioration in the near-term outlook for the economy and public finances."

“With a no deal Brexit borrowing is likely to be much higher – by £30bn according to the OBR even in a relatively optimistic scenario,” said IFS economists.

“Making major fiscal announcements without new OBR forecasts risks a return to the bad old days when chancellors could make fiscal claims not based on the best available independent forecasts,” they added.

The chancellor has already pledged £400m to invest in 16- to 19-year-olds’ education, in sixth-form colleges and further education providers.

Paul Johnson, director of the IFS, says he hopes the chancellor will follow a similar route with “less high profile” public services.

“Big immediate increases in funding may draw more plaudits but they put value for taxpayer money at risk”, he says. “The opposition should bear this danger in mind as they plan much more substantial spending increases.”