Yahoo Finance Revealed: Easing austerity could drive £300bn blackhole in Government spending, report claims
The government is set for a £300bn spending black hole over the next six years if it decides to ease austerity, The Telegraph can reveal.
Addressing the recruitment crisis in public services and the rising costs of an ageing population will make it far harder for Philip Hammond to balance the books by 2025, analysts at the National Institute of Economic and Social Research (NIESR) have warned.
Keeping services at a level “sufficient to deliver quality” amid heightened demand in areas such as state pensions and the NHS will result in the government facing £300bn of unaccounted spending over the next six years – “the minimum amount that the Government needs to spend to satisfy public and political demand”, the report said.
Talk of a light at the end of the fiscal tunnel at the Chancellor’s Spring Statement “will turn out to be an illusion” said Dr Garry Young, who oversaw the report.
The sum of £300bn was generated by a forecast that takes into account the likely cost of an older population and historic rates of government spending.
In the forecast scenario, spending restraint is relaxed to in order to address worker shortages and increased demand for services.
It showed that the deficit would rise to over 4pc of GDP by 2022-2023, breaking the government’s tight rules on fiscal prudence.
To avoid that amount of borrowing, taxes would have to be raised by £80bn. The research, commissioned by tech firm Sopra Steria, found that an ageing population would account for £40bn of the unaccounted for £300bn spending.
Older service users would add to costs in areas such as inpatient bed days and GP appointments. While “taxing won’t be popular”, a separate tax for healthcare might be more acceptable to the public, Dr Young said. “I think what wouldn’t really be acceptable is to carry on as we are,” he added.
The research follows other warnings from economists that the Government has failed to sufficiently factor in the likely impact of an ageing population.
Warnings from the report echoed calls from Paul Johnson, director of the Institute for Fiscal Studies, for politicians to stop pretending “they can reinvent the laws of economics”.
“We’ve got two parties who want to have European levels of social spending and American levels of tax,” Mr Johnson said.
The report also noted that a so-called hard Brexit which saw the EU-UK trading relationship revert to WTO rules, could add a further £50bn to the government’s spending shortfall.
