Unfunded tax cuts mean UK ‘will need £60bn spending cuts’
Kwasi Kwarteng will need to find £60bn of savings by 2026 to fill the gap left by unfunded tax cuts and the costs of extra borrowing triggered by a panicked reaction on international money markets to the chancellor’s “mini-budget”, according to the Institute for Fiscal Studies.
The UK will also struggle to hit the chancellor’s 2.5% growth target, with economic forecasts by the investment bank Citigroup that the IFS uses to underpin its analysis showing the UK will struggle to grow at more than 0.8% on average over the next five years.
That sluggish growth rate, thanks to a toxic cocktail of a slowing global economy, the UK’s weakened trade balance after Brexit and the fallout from the mini-budget, would be slightly less than half the growth rate forecast by the Office for Budget Responsibility in March.
The £45bn cost of the mini-budget will wipe out any financial space left to the chancellor by his predecessor, swelling Britain’s debt as as share of national income for at least the next five years.
The IFS director, Paul Johnson, said that while it was “technically possible” for Kwarteng to balance the books via spending cuts, he warned public sector spending had already suffered a huge hit over the last decade and that there was “not much fat left to cut”.
In 2026 the government is likely to still be borrowing £100bn a year when previous forecasts showed it falling to nearer £30bn, the IFS said.
A proportion of the rise in borrowing is accounted for by the energy price cap that ministers agreed to maintain the average household bill at £2,500 a year.
The IFS said the cost of the package was likely to be lower than the £150bn expected by the Treasury at about £114bn, though it would still add to the avalanche of unfunded
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