William Eichler 12 October 2021

Chancellor has ‘little or no scope’ to increase local government funding

Chancellor has ‘little or no scope’ to increase local government funding image

The Chancellor is going to struggle to find money for cash-strapped local authorities despite planning to implement the biggest tax rises in 25 years, think tank says.

The Institute for Fiscal Studies (IFS) has reported that the Government’s planned £28bn package of tax rises – announced in the March 2021 Budget – will increase the UK’s tax take to its highest sustained level in peacetime.

The IFS also reported that Chancellor Rishi Sunak is overseeing an historic increase in the size of the state. Spending will settle at 42% of national income, more than 2% above its pre-pandemic level and its highest level ‘in normal times’ since 1985.

However, despite the increase in taxation and the expansion of the state, the 2021 IFS Green Budget calculates that the Chancellor will have to increase spending on services other than health, defence, schools and aid by less than he was planning pre-pandemic in order to balance the budget, and may even have to implement cuts to some budgets over the next two years.

Paul Johnson, IFS Director and an editor of the Green Budget, said: ‘Rishi Sunak, a Conservative Chancellor, is presiding over an increase in the tax burden to record levels in the UK and an increase in the size of the state (public spending as a fraction of national income) to levels not seen since the days of Mrs Thatcher.

‘Yet the combined effects of ever-growing spending on the NHS and an economy smaller than projected pre-pandemic mean that he is still likely to be short of money to spend on many other public services.

‘On central forecasts, there will be little or no scope to increase spending on things like local government, the justice system and further education, after a decade of sharp cuts.

‘That said, he still faces huge uncertainty over the direction of the economy and hence over the state of the public finances. He will be hoping against hope that stronger-than-expected growth in revenues over the next few years will help to dig him out of what still looks like a fair-sized hole.’

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