Higher inflation is set to wipe out 40% of the planned growth in public sector funding over the next three years leading to a £44bn shortfall, according to a study by the Institute for Fiscal Studies (IFS).
While original forecasts in last October’s Spending Review anticipated public sector inflation at 2.3% it has now risen to 3.7%. The average real terms growth rate in funding for the next three years has therefore dropped from the planned 3.3% to 1.9%.
The IFS estimates that funding growth for the Department of Health and Social Care will drop from the planned 4.3% to 2.9% and for the Department of Education from 2.2% to 0.7%.
To compensate the Treasury would need to find an extra £8bn this year and £18bn for each of the following two years, a total of £44bn.
Ben Zaranko, senior economist and author of the IFS study, said: ‘Sticking to existing spending limits in the face of higher costs would require departments to make efficiency savings; demanding further efficiency savings in order to fund tax cuts or cost of living support would pose acute challenges for public services.’
Cllr James Jamieson, Chairman of the Local Government Association, called for extra funding to meet the shortfall saying: ‘Only with adequate long term funding – to cover increased cost pressures and invest in local services - and the right powers, can councils deliver for our communities, tackle the climate emergency, and level up all parts of the country.’
