Getting out of a spending jam

The Government faces a huge spending challenge, continuing reductions in day-to-day spending and maintaining the quality of public services. With the added pressures of Brexit and an increasingly unstable geopolitical situation, the Autumn Statement provides a chance for the Chancellor to show that the government is still capable of focusing on the big spending decisions it faces.

In its pre-Autumn Statement paper, IfG Deputy Director Julian McCrae says are three areas the Chancellor needs to urgently address:

  1. The expected worsening of the public finances, where the Chancellor will allow significantly higher borrowing to take the strain. He may also compound the issue by raising spending in areas like infrastructure to show Britain is “open for business” post the Brexit referendum, and for “just about managing” families in line with the PM’s leadership campaign;
  2. The urgent issues in services like health and prisons, which are at breaking point. The Chancellor will probably try to delay additional action until the Budget, combining any extra cash with serious reform plans.
  3. The limited potential for cuts in other budgets. Here the Chancellor will probably reduce aid spending in line with falling GDP, but not defence spending. He is unlikely to make any reductions in pensioner benefits, or to yet be able to factor in any Brexit-related savings from reduced EU contribution.

The animated GIF below explores the Chancellor's options in more detail:

Autumn Statement 2016 - issues for the Chancellor.gif

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