Healey backs away from welfare cuts as IFS warns of £28bn shortfall
The chancellor's first budget leaves public service spending plans "extremely tight", the IFS says, with reviews of employment support and disability benefits still to report.
At a glance
- John Healey has backed away from cutting the welfare bill this parliament, saying no timetable has been set.
- The IFS says he needed an extra £28bn a year and faces a spending review that looks "pretty brutal".
- The OBR forecasts welfare spending rising from £334bn last year to £431bn by 2030.
John Healey has backed away from cutting the cost of welfare this parliament, after his first budget drew warnings of a £28bn shortfall in the public finances.
The Institute for Fiscal Studies (IFS) said the chancellor had left himself a "mountain to climb" by ducking big tax and spending decisions. In its analysis, the thinktank said Healey would have needed to set aside an additional £28bn a year to offset the impact of inflation on future spending plans and still hit the target of spending 3% of GDP on defence by 2030.
Helen Miller, the IFS director, said Healey had opened the way to "a spending review that looks pretty brutal for some departments", including real-terms budget cuts. "Public service spending plans look extremely tight. They don't look to me like plans that this government would want to deliver," she said, warning of "another season of damaging speculation about tax rises".
Welfare bill
The welfare bill will not be part of the spending review, which focuses on departmental budgets. But Healey pointed to planned reforms as evidence of his determination to balance the books, telling BBC Radio 4's Today programme: "We have to bring the benefits bill down."
Asked earlier whether there would be a reduction before the next election, he appeared to say there would. "There will be. There will be a reduction in the benefits bill," he said. Treasury officials later clarified he had not meant to give a timeline, and Healey told Channel 4: "It's not correct to say that we are going to bring this welfare bill down in this parliament because we've not set a timetable for that."
He instead cited forthcoming reviews: Alan Milburn on employment support for young people and Stephen Timms on disability benefits. Milburn is expected to recommend additional spending upfront, aimed at bringing down costs over the longer term by helping more young people into employment.
The Office for Budget Responsibility forecasts total welfare spending rising from £334bn last year to £431bn by 2030, with about half spent on pensioners and a quarter on sickness and disability benefits. The overall forecast has risen by £8bn since March.
Cost of living and banks
Healey put cost of living measures at the heart of his first budget, including a £100 winter payment for most households, and doubled the surcharge banks pay on their profits from 3% to 6% for 15 months. Critics accused him of a "scattergun" approach and of not hitting Britain's banks hard enough to fund the package.
The Resolution Foundation said he had failed to target energy support at the households that need it most, ahead of a difficult winter with bills expected to rise sharply in January and the Bank of England expected to raise interest rates next week.
Ruth Curtice, its chief executive, said: "Faced with a tough backdrop amid global economic turmoil, the chancellor delivered a scattergun budget that did little to address the sharp challenges facing Britain."
Paul Nowak, the TUC's general secretary, welcomed Healey's approach but said he would push him to go further, seeking an extension and increase of the bank tax if banks are still making windfall profits.
On growth, Healey said the single biggest driver of better prospects for the UK would be an end to the Iran and Ukraine wars. He took a more cautious line than the prime minister on the benefits of rejoining the EU or the single market, telling LBC: "Brexit has certainly hit our level of growth. It's certainly hit our level of trade. But we had a referendum. We're out of the European Union." Asked by Channel 4 whether he hoped the UK would re-enter the bloc in his lifetime, he said: "I'm older than Andy Burnham. I don't expect to see that."
The IFS also said the £15bn headroom Healey left himself against Labour's fiscal rules could easily be eroded by higher than expected energy costs. The buffer absorbed some of the impact of the Iran war, which has driven up the government's cost of borrowing; at the spring statement, Rachel Reeves had built up headroom of £24bn. Miller called that a "reasonable" decision but said a lower buffer left the chancellor more exposed to future bad news.
Source: The Guardian.
Questions and answers
- Is the UK cutting the welfare bill in this parliament?
- John Healey said no timetable has been set for bringing the welfare bill down, after Treasury officials clarified an earlier remark that a reduction would come before the next election.
- What did the IFS say about John Healey's budget?
- The IFS said Healey left himself a "mountain to climb" and would have needed an extra £28bn a year to offset inflation and meet the 3% of GDP defence target by 2030, pointing to a "pretty brutal" spending review.
- How much is the UK forecast to spend on welfare?
- The Office for Budget Responsibility expects total welfare spending to grow from £334bn last year to £431bn by 2030, with about half going to pensioners and a quarter to sickness and disability benefits.
