(qlmbusinessnews.com wED. 5th June, 2024) London, UK —
“Resolution Foundation: Next UK Government Faces £33 Billion Fiscal Gap”
The Resolution Foundation, a prominent think tank, has issued a stark warning that the next UK government will need to address a substantial £33 billion gap in public finances unless it implements severe austerity measures. Both the Labour and Conservative parties aim to reduce national debt, but the Foundation suggests their promises are unrealistic.
The think tank argues that the political debate between Labour and the Conservatives over funding specific pledges is “detached from reality,” with many election promises hinging on cuts that may be unfeasible. Both major parties are committed to lowering debt as a proportion of national income within five years. However, higher interest payments on existing debts, slower productivity growth, and the £10 billion cost of compensating victims of the infected blood scandal complicate this goal.
The Office for Budget Responsibility (OBR), the Treasury's tax and spending watchdog, estimates that the government is on track to meet its debt-to-GDP target with a margin of just £9 billion. Yet, the Resolution Foundation contends that the victorious party in the upcoming general election will face a difficult choice: increase taxes or reduce spending to achieve the debt target.
According to the think tank, adhering to current spending plans would likely result in a deficit of about £12 billion. However, if the next government opts to protect spending on prisons, police, and local government from new cuts, the deficit could balloon to £33 billion. Last month, the International Monetary Fund (IMF) also warned of a potential £30 billion post-election shortfall in its annual health check of the UK economy.
James Smith, Research Director at the Resolution Foundation, stated, “The state of the public finances has dominated the election campaign so far, with inevitable arguments over how each spending pledge is funded. But this narrow focus risks distracting the electorate from the bigger question of how each party would manage the uncertainties facing the public finances. This question is crucial, as whoever wins the election could be confronting a fiscal hole of £12 billion if today's uncertainties turn into bad news after the election. And if the next government wants to avoid a fresh round of austerity, that black hole could rise to over £33 billion.”
Budgets for NHS England, education, defence, and the Foreign, Commonwealth and Development Office are ring-fenced. However, this would result in inflation-adjusted, per-person spending cuts of 13% for unprotected departments like justice, the Home Office, and local government between 2024-25 and 2028-29. Such cuts, totalling £19 billion, would equate to nearly three-quarters of the reductions made during the 2010-2015 parliament.
The Resolution Foundation noted, “Delivering these cuts in the face of already crumbling public services and the public desire for more, not less, spending on public services would likely prove very challenging.”
While both parties aim to reduce debt, the next government could be on track to miss this target by over £30 billion. The fiscal debate has become “detached from reality,” the think tank concluded.
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