Chancellor of the Exchequer Rachel Reeves was torn apart by the IFS today.Rachel Reeves’ spending review has been slammed by leading economists who said it was not a “serious department analysis”.
The chancellor unveiled her plans to spend an extra £300 billion over the next three years on Wednesday, divvying out huge sums of cash to the NHS, net zero and defence – while also squeezing other Whitehall budgets.
The government has said this is all an investment in Britain’s renewal, and insisted that these decisions are fully-financed after Labour hiked taxes in last year’s Budget.
However, the director of think tank the Institute for Fiscal Studies (IFS) Paul Johnson tore into her announcement on Thursday.
“If you were baffled by the chancellor’s speech yesterday, so were we,” he said during the IFS’s analysis livestream on YouTube. “It did not appear to be a serious effort to provide useful information to anybody.”
He also seemed to criticise the premise that the economy is now in better place than it was a year ago, hence Labour’s decision to spend again – and reverse some cuts.
“Despite some of the rather odd recent claims, neither the economic forecasts nor the public finances have improved relative to the genuinely difficult situation we knew about a year ago,” Johnson said. “Rather the reverse. Hence some difficult choices.”
Large council tax hikes have been included in the government expectations for the review, which also “assumes that council tax bills will rise by 5% a year”, according to the IFS chief.
That means bills will rise at their fastest rate “over any parliament since 2001-05.”
Johnson laid into the cuts Reeves is imposing on other Whitehall departments in order to boost the NHS, defence and net zero, too.
He said: “Every department is facing the same administrative costs, 10% for all of them over the three years, and then another 5% in 2029-30.
“All of that is irrespective of how much they’ve grown, irrespective of planned spending increases, irrespective of anything at all.
“That is not the result of a serious department analysis.
“I hesitate to accuse the Treasury of making numbers up but…”
He noted that total departmental spending is set to grow at 2.3% a year above economy-wide inflation.
That’s lower growth than was recorded over the 2019-2024 parliament, when it increased at 3.6% per year.
“This is a long period during which spending will be growing faster than the economy,” he said.
Johnson even questioned the suggestion that the NHS had fared particularly well, noting: “Health spending nearly always gets topped up. Growth of 3% a year is below the historic average.”
Mounting pressures on spending, including the U-turn on winter fuel allowance for pensioners and the backlash against disability benefit cuts, means Reeves is expected to either introduce more cuts or hike taxes in the autumn Budget to pay for it all.
Johnson noted: “Nobody should be in any doubt that the chancellor has had some incredibly tough decisions to take.
“With spending plans set, and ‘ironclad’ fiscal rules being met by gnat’s whisker, any move in the wrong direction will almost certainly spark more tax rises.”
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