Public spending will face a squeeze under Jeremy Hunt’s autumn budget but most of the pressures may not be fully felt until after 2025.
However, it means that the Conservatives could be out of office by the time spending cuts are scheduled to take full effect, with the next election required to take place before January 2025.
The details emerged in the Chancellor’s autumn statement, which came alongside a detailed Office for Budget Responsibility forecast, with some economists already sceptical of the approach taken by Mr Hunt as the Institute for Fiscal Studies (IFS) suggested that the plan could “stretch credulity”.
The decision likely means fewer day-to-day cuts to public spending than originally expected, with Treasury officials stressing that the cuts cannot be compared to those overseen by former Tory chancellor George Osborne in the 2010s.
Details of where the cuts and efficiencies will fall in the coming years are as yet unclear, with the Government committing to the current spending review, due to expire in 2024/25.
We are going to grow public spending – but we’re going to grow it slower than the economy. For the remaining two years of this spending review, we will protect the increases in departmental budgets we have already set out in cash terms— Jeremy Hunt, Chancellor
It also comes alongside increases in the schools budget and in the NHS to fund social care, announced by the Chancellor on Thursday.
Treasury officials stressed that spending will still grow over the forecast, with a Treasury analysis suggesting that after the spending review period, departmental spending will grow at 1% a year in real terms.
But post-2025 cuts could be coming for so-called “unprotected” budgets, even if the NHS, schools, defence and overseas aid is exempt.
The decision on funding will likely be good news for departments in the short-term, which are already struggling with tight budgets as soaring inflation also pushes up costs.
“The fiscal tightening is heavily back-loaded, with the vast bulk spending cuts in particular pencilled in for after April 2025,” the IFS Director Paul Johnson said.
“Given the profound uncertainty around the outlook, and the potential economic and social costs of an unnecessarily large up-front fiscal tightening, this is probably the right choice, on balance.
“But delaying all of the difficult decisions until after the next general election does cast doubt on the credibility of these plans. The tight spending plans post-2025, in particular, may stretch credulity.”
The Resolution Foundation, in its analysis, warned that some of the spending cuts required after 2025 could prove “undeliverable”.
The think tank said that the implied scale of cuts in some areas would take “real per capita spending for these departments back to the level they were at in 2014-15”, warning that they could prove “undeliverable given they would require years of holding down public sector wages below those in the private sector”.
In the Commons, Mr Hunt told MPs: “We are going to grow public spending – but we’re going to grow it slower than the economy. For the remaining two years of this spending review, we will protect the increases in departmental budgets we have already set out in cash terms.
“We will then grow resource spending at 1% a year in real terms, in the three years that follow.
“Although departments will have to make efficiencies to deal with inflationary pressures in the next two years, this decision means overall spending in public services will continue to rise, in real terms, for the next five years. ”
The weeks before the autumn statement had brought warnings of “difficult decisions”, amid fears that Mr Hunt could take an axe to public spending in order to reassure financial markets.
In the Commons, shadow chancellor Rachel Reeves had attacked Mr Hunt over his plan, with the Labour MP accusing the Government of forcing the UK economy into a “doom loop where low growth leads to higher taxes, lower investments and squeezed wages, with the running down of public services”.
