One of the UK’s leading thinktanks has criticised Rishi Sunak’s plans for an abrupt end to the £20 a week increase in universal credit, calling the decision not to phase out the uplift “remarkable”.
In its post-budget analysis, the Institute for Fiscal Studies contrasted the way in which the furlough, stamp duty holiday, the cut in VAT and business rates support were being phased out, with the cliff-edge for universal credit (UC) in September.
Paul Johnson, the IFS’s director, said pressure would mount to maintain the £20 a week increase, even though it would cost the Treasury £6bn a year.
“It is, by the way, remarkable that while the chancellor felt the need for a gradual phase out of furlough, business rates support, stamp duty reductions and VAT reductions he is still set on a cliff-edge reduction in UC such that incomes of some of the poorest families will fall by over £80 between one month and the next. Whatever the case for cutting generosity into the longer term, if you’re going to do so the case for doing it gradually rather than all at once looks unanswerable.”
Johnson said Sunak’s package was a “tale of two budgets”, with £65bn of immediate support for the economy followed by nearly £50bn of tax increases and spending cuts.
The IFS director said the chancellor would struggle to make the savings he is planning and doubted whether the jump in corporation tax from 19% to 25% – the biggest revenue raising measure in the budget – would deliver the £17bn expected.
“I may be proved wrong, but I’d offer 10 to 1 against that happening,” Johnson said.
The increase in corporation tax and the freezing of tax allowances were both “screeching U-turns” on Conservative policy over the past decade, Johnson added.
Sunak plans involve covering the day-to-day spending of government with tax receipts by the middle of the decade, with the state only borrowing for investment.
“The sad truth is that that would be a balance built on the highest sustained tax burden in UK history and yet further cuts in unprotected public service spending,” Johnson said. “That is perhaps one measure of the difficulties presented by more than a decade of paltry growth followed by the deepest recession in history.”
The IFS director said he doubted whether Sunak’s spending plans would be adhered to.
“Are we really going to spend £16bn less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022?
“In reality, there will be pressures from all sorts of directions. The NHS is perhaps the most obvious. Further top-ups seem near-inevitable. Catching up on lost learning in schools, dealing with the backlog in our courts system, supporting public transport providers, and fixing our system for social care funding would all require additional spending. The chancellor’s medium-term spending plans simply look implausibly low.”
Johnson said the chancellor was providing a big fiscal – tax and spending – stimulus to the economy over the next two years.
“We have that support to thank for the now remarkably modest Office for Budget Responsibility forecasts of unemployment. If it really does peak at “only” 6.5% we, and Sunak, can consider that a remarkable triumph.”