Public services need another £44bn by 2025 to cope with inflation, says IFS

theguardian.com:

The government will need to spend an extra £44bn over the next three years on public services to keep pace with rising inflation and avoid steep cuts, according to analysis by the Institute for Fiscal Studies.

In a review of the rising costs facing the public sector, the IFS said that without further funding, Whitehall budgets faced being overwhelmed by rising cost pressures that would force departments to cut staff and services.

The government said in its November spending review that it would increase departmental budgets by 3.3% on average above the then inflation rate. But with prices soaring since then, the tax and spending thinktank is forecasting the rise in budgets is now unlikely to be more than 1.9%.

“In other words, higher inflation is expected to wipe out more than 40% of the planned real terms increases,” it said.

Most of the increase in public spending budgets last year was targeted at the health service and social care sector and paid for with the £39bn raised over three years by a 1.25% rise in national insurance contributions.

In other areas of government that were due to receive allocations above inflation, including education and defence, settlements that reversed large cuts made over several years preceding the pandemic would be less generous.

Education spending would “barely increase over the three-year spending review period”, the IFS said, while “the Ministry of Defence’s day-to-day budget would, on these estimates, be more than 8% lower in 2024−25 than in 2021−22”.

Inflation across the public sector was forecast to be 2.3% on average over three years at last year’s spending review. In March this year the figure was revised upwards to 2.8% and the real terms increase in spending dropped to 2.8%. The IFS