UK Chancellor Rishi Sunak Plans Budget Cuts Worth £2Bln Amid 'Highest' Tax Rate in Peacetime

UK Chancellor of the Exchequer Rishi Sunak is planning budget cuts worth 2 billion pounds, the Institute for Fiscal Studies (IFS) said in its "Green Budget" assessment conducted jointly with the investment bank Citi.

According to the economic think thank, the planned tax hikes will increase Britain's tax intake "to its highest sustained level in peacetime", but this will not be enough to fund some government departments.

The spending squeeze is likely to affect areas such as "local government, prisons, further education, and courts", IFS said

"These budgets were cut substantially in the 2010s, and a further round of cuts would be difficult to reconcile with the government's stated objectives – particularly around 'levelling up'", the assessment read.

The economic think tank noted that overall government spending will settle at 42 percent of national income, more than 2 percent above its pre-pandemic level, however, due to the ageing population a growing share of the budget will be spent on healthcare, leaving other areas underfunded.

A spokesperson for the Treasury said the government will continue to invest in key public priorities.

"Core departmental spending will grow in real terms over this parliament at nearly 4% per year on average – a 140 billion pound cash increase and the largest real-terms increase in overall departmental spending for any parliament this century", the spokesperson said.

Economic Outlook

Commenting on the UKs' recovery from the financial crisis wrought by the coronavirus pandemic, IFS said it was rapid, but incomplete, with the economy being "one large recession short of its pre-COVID trajectory".
Brexit, however, has had a more detrimental effect on the economy, says an analysis by Citi Bank.

"The scarring just because of the pandemic may not be as large as we thought last year. The scarring due to Brexit may actually be larger. Brexit is casting a long shadow over the economy", said Christian Schulz, the bank's director of European economics.

Citi's forecast estimates that Britain's economy will be between 2 and 3 percent smaller in 2024-2025.

The IFS said under the most optimistic scenario, the government could reap the biggest current budget surplus since 1972.

"[Rishi Sunak] still faces huge uncertainty over the direction of the economy and hence over the state of the public finances. He will be hoping against hope that stronger-than-expected growth in revenues over the next few years will help to dig him out of what still looks like a fair-sized hole", said IFS director Paul Johnson.