Budget 2018: A bit of a gamble, says IFS

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The Budget has been branded “a bit of a gamble” by a respected economic research group.

The chancellor was able to promise more spending in his budget after forecasts for tax collection were raised, the Institute for Fiscal Studies said.

But those forecasts could easily change for the worse, leaving the chancellor in a tight spot, the IFS said.

The think tank also warned that many public services will continue to feel squeezed for some time to come.

“This is no bonanza,” said Paul Johnson, the director of the IFS.

“If I were a prison governor, a local authority chief executive or a head teacher, I would struggle to find much to celebrate. I would be preparing for more difficult years ahead.”

Health spending is the exception, with £20bn extra funding promised to help the NHS and pay for mental health services.

Speaking to the Today Programme earlier, the Chancellor, Philip Hammond, defended his spending decisions. He said that taken as a whole, other departments would see their spending rising in line with inflation.

In her speech to the Conservative Party conference in October, Prime Minister Theresa May promised an end to austerity.

The IFS said it is not clear yet whether austerity is over. It pointed out that £4bn of cuts to welfare spending are still working their way through the system.

A judgement on austerity also depends on what is measured, according to the IFS.

While total spending, including the effect of inflation, is set to rise, spending as a fraction of national income will fall slightly.

Mr Johnson also said this Budget showed the government had abandoned its target to get rid of the gap between spending in income – the deficit – in the near future.

“Any idea that there is a serious desire to eliminate the deficit by the mid-2020s is surely for the birds.”

‘A gamble’

The chancellor bases his Budget on figures from the Office for Budget Responsibility. This year it revised up its forecasts for tax income, which was an unexpected windfall for the government.

However, the IFS warned: “Yesterday’s Budget was a bit of a gamble.

“What the OBR gives this year, it can easily take away again next year. If it does, then the chancellor will have painted himself into a bit of a corner.”

To get himself out of that corner, the chancellor would have to raise taxes, or more likely, continue to borrow money, the IFS said.