Public Services Face Cuts As Inflation Set To Drain £26bn

Healthcare and other sectors face a real-terms fall in funding, IFS warns.

- Anna Isaac

Public services face deep cuts unless the government acts to plug a £26bn hole caused by inflation in the next two years, economists have warned. A report by the Institute for Fiscal Studies (IFS) warned candidates in the Tory leadership race to be “honest and transparent” about the tough decisions that lie ahead this winter in areas from education to healthcare.

Senior economist at the think tank, Ben Zaranko, called for clarity on leadership candidates’ spending plans for the sector. He said: “Given the inflation-induced squeeze on departments, and given the clear signs of strain within the NHS in particular, it might make sense for Mr Sunak and Ms Truss to also outline their plans and vision for public spending and public services,” he said.

The IFS’s intervention follows requests for an emergency drive to ease cost of living pressures from former prime minister Gordon Brown, business group the Confederation of British Industry, and Money Saving Expert founder, Martin Lewis.

A failure to increase budgets for the NHS and government departments would be a “deliberate decision to cut spending” it said. Departments and other institutions funded by the Treasury are allocated funding in cash, rather than in real terms, without taking into account inflation.