Public sector pay rises driving fiscal ‘black hole’
29 July 2024
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Labour Market
Lifestyle Economics
Tax and Fiscal Policy
19 November 2024
Commenting on spending cuts announced by Chancellor Rachel Reeves to plug a £20 billion gap in the public finances, Julian Jessop, Economics Fellow at the free market Institute of Economic Affairs, said:
“Rachel Reeves’ statement on the state of the public finances was good in parts. The estimates for the size of the ‘black hole’ may be suspect, but the increased scrutiny of in-year spending is welcome. The new Chancellor also appears willing to take tough decisions to save taxpayers’ money, such as ending winter fuel payments for better-off pensioners.
“However, taking the figures at face value, the immediate savings identified will only reduce this year’s shortfall from £21.9 billion to £16.4 billion. This suggests that substantial tax rises in the Autumn Budget will still be needed to close the gap.
“Moreover, the biggest single item is the bill for above-inflation pay rises in the public sector, only partially funded by efficiency savings. The Chancellor has also decided to double down on the existing fiscal rules, which are arbitrary and hold back the economy.
“The result is likely to be further cuts in infrastructure spending and large increases in the taxes on investment, which is not a good look for a Government that says it is prioritising growth.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
“Rachel Reeves’ statement on the state of the public finances was good in parts. The estimates for the size of the ‘black hole’ may be suspect, but the increased scrutiny of in-year spending is welcome. The new Chancellor also appears willing to take tough decisions to save taxpayers’ money, such as ending winter fuel payments for better-off pensioners.
“However, taking the figures at face value, the immediate savings identified will only reduce this year’s shortfall from £21.9 billion to £16.4 billion. This suggests that substantial tax rises in the Autumn Budget will still be needed to close the gap.
“Moreover, the biggest single item is the bill for above-inflation pay rises in the public sector, only partially funded by efficiency savings. The Chancellor has also decided to double down on the existing fiscal rules, which are arbitrary and hold back the economy.
“The result is likely to be further cuts in infrastructure spending and large increases in the taxes on investment, which is not a good look for a Government that says it is prioritising growth.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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