LONDON (Parliament Politics Magazine) – The chancellor’s Spring Statement, which is due on March 23, was not supposed to be a big deal. But, according to the IFS, fast rising inflation and the start of the start of Ukrainian conflict may push the chancellor to publish more than simply a new set of economic and budgetary estimates.
The far-reaching economic issues associated with this shifting outlook are laid apparent in a new IFS report released ahead of the statement. Higher inflation will strain households and public services, the economy will be shaken by more uncertainty, and the public finances will be buffeted by the impact from Ukraine.
At least a quarter of the real terms increases in government spending declared earlier in October will be wiped out as a result of higher inflation.
It would cost the government roughly £10 billion, or about £1,750 per worker, if the government reflected this in increased public sector pay awards.
Or, equivalently, if the changing inflation prognosis was not seen in pay awards, the average public sector employee’s gross compensation would be decreased by roughly £1,750 in real terms. This would be on top of real salary cutbacks ranging from 5% to 10% for many public employees, including many teachers, during the last decade.
As far as household budgets are concerned, Rishi Sunak may need to find more than £12 billion on top of the £9 billion already committed to provide the level of price protection he promised in February.
According to the IFS, the chancellor needs to make at least three major decisions. Either he will have to borrow and spend billions more, or he will have to accept a fall to household earnings greater than at any time since the financial crisis, if not since the 1970s.
He will have to either impose significant real wage cuts on nurses, teachers and other public sector workers, on top of large cuts over the last decade, or spend far less than expected on other elements of public services, or increase government borrowing even more.
He’ll have to choose between leaving defence spending as the only major component of government spending to fall over the coming three years, and falling much more than intended given current inflation, or he’ll have to leave it as the only major component of government spending to rise over the next three years. or find more money yet again from additional borrowing.
Rishi Sunak needs to make a significant judgement call at the Spring statement” said director of the IFS, Paul Johnson. Will he do more to safeguard families from the effects of rising energy prices, which have increased even more in the last two weeks? If he doesn’t, many people on moderate salaries will see their living standards plummet for the first time since the financial crisis.
If he does, the government’s finances will take another hit. While he had no choice but to take large-scale state action in the face of the pandemic, his approach to the crisis will reveal more about how he views the government’s role in safeguarding civilians from external forces, he added.
