Why the IFS thinks Labour and the Tories are being dishonest

Following the chancellor's Budget on Wednesday, financial forecasters have begun mapping out how the British public will be impacted for the coming months and years, ITV News' Business and Economics Editor Joel Hills has the latest

There was some good news in Wednesday's Budget.

If the Office for Budget Responsibility’s forecasts prove accurate, then inflation will fade further, growth will pick up a little and living standards will soon begin rising.

By the next general election, a growing number of people should be feeling a little better off.

But whoever forms the next government will inherit the toughest outlook for the public finances in 80 years, according the Institute for Fiscal Studies (IFS).

The IFS warns that the plans pencilled in by the chancellor in his Budget, along rising national debt, the prospect of low economic growth and high interest rates mean “staggeringly hard choices” lie ahead.

And the head of the IFS argues that neither the Conservatives nor Labour are being upfront about what they would do.

“Government and opposition are joining in a conspiracy of silence in not acknowledging the scale for the choices and trade-offs that will face us after the election,” said Paul Johnson, Director of the IFS.

“They, and we, could be in for a rude awakening when those choices become unavoidable”.

The chancellor delivered a chunky tax cut yesterday but it is a tax cut that is being paid for at the expense of spending on public services through the next parliament.

The IFS estimates day-to-day spending for a range of departments outside health, defence and education, is fall by something like £20 billion a year by 2028/2029.

The chancellor hasn’t set out how these cuts will be delivered.

Labour is not saying if it would reverse them and, if it plans to, how it would find the money,

“Neither side is being transparent about the challenges,” Johnson said.

Both parties say that they want to have debt falling in the medium term which means, if they take office, they will find their ability to borrow restricted.

National debt is high and rising and we are living, for now, in a world of poor economic growth and higher interest rates.

You have to be careful with comparisons between the finances of governments and households but imagine you have a mortgage and your mortgage rate went up.

If your pay was growing strongly you might not be too concerned. If your income wasn’t growing then you’d have a problem.

And the government has a debt problem. Slow economic growth means tax income haven’t been growing.

Meanwhile, the government has taken on a much bigger mortgage, borrowing money in order to keep people in their jobs during Covid lockdowns and to subside energy bills during a cost of living crisis.

The stock of national debt has risen by £800 billion in cash terms since February 2020, to £2,418 billion and it’s projected to rise further.

Over the same period, the interest the government pays on it debt has increased from £35 billion a year to £100 billion. That’s almost three times what the government’s annual spending on defence.

“This was not a budget which addressed the real challenges we are facing because it was not transparent about what those challenges are,” says Johnson.

The IFS argues that if the Conservatives wish to cut taxes and believe there are some services the state should no longer be providing then they should say so publicly.

Equally, if Labour thinks public services are on the ropes and need better funding they should be honest about which taxes they will increase.

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