The latest report from the Fiscal Advisory Council will not go down will with the Government. But then the council is not there to be popular. It has accused ministers of “bad budgeting” and engaging in “gimmickry” in some of its spending manoeuvres.
The backdrop to much of the Ifac criticism is the temporary measures introduced during the pandemic– and subsequently to respond to the arrival of Ukraine refugees and the cost-of-living crisis. These led to higher spending and the introduction of a range of measures and costs which were labelled as " once-off.” In the event, many have continued, in one form or another.
The budgetary response to the pandemic was generally seen to have been well-judged, as were the measures to respond to the cost-of-living crisis .The problem, as the council points out, is that many of the temporary measures –such as energy supports – have been continued, while spending in areas like dealing with Ukrainian refugees now looks likely to be at least semi-permanent. Meanwhile, as the council says, budgeting for the health service has been unsatisfactory and a further overrun looks likely next year.
The council wants the Government to abide by the National Spending Rule, limiting spending increases to 5 per cent each year. Inflation was cited by ministers–reasonably –as a reason to relax this, but the council is worried that despite inflation easing, future plans imply that it will continue to breach the ceiling.
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The Government budget has been hit be a series of shocks in recent years and the council is correct that the distinction between ongoing and temporary commitments has been blurred. And that policy now lacks an anchor – a rule to ensure the public finances are kept in check.
Given the extent of the upheavals it has faced, the Government may feel hard done by in some of the language used, notwithstanding the council’s welcome for its plans to put cash aside for the future. But with tax revenue growth likely to ease and spending rising strongly, the issues raised by the council do still need to be addressed.
