UK government spending on course for highest since 1980s, IFS says

LONDON (Reuters) - Britain’s Conservative government is on course to raise public spending to its highest since the mid-1980s, after finance minister Rishi Sunak unveiled plans that go far beyond combating coronavirus, the Institute for Fiscal Studies said on Thursday.

Sunak’s first budget, which he presented to parliament on Wednesday, envisages annual spending rising by 9% or 76 billion pounds over the next 4 years, mostly funded by higher borrowing, to about 41% of national economic output.

“That is above pre-crisis levels, above the size of the state over which the last Labour government was presiding, bigger than at any time since the mid 1980s, other than when the economy shrank during the crisis,” IFS director Paul Johnson said.

Britain’s Office for Budget Responsibility forecast the country’s budget deficit over the next 5 years would average around 2.5% of economic output, while total debt would be about 75% of GDP - mid-table by international standards.

Sunak’s plans includes a one-off 12 billion pounds of extra spending specifically targeted at helping health services and businesses through the coronavirus, but most of the longer-term increase reflects higher public investment.

“There is a big challenge here, a really big challenge and one we don’t talk about enough, and that is ensuring all of that money is well spent,” Johnson said.

Existing infrastructure projects, such as the Crossrail underground rail link connecting central London with towns to the east and west of the capital, have suffered lengthy delays and cost overruns.

The focus on investment means day-to-day budgets in other areas will still feel squeezed.

Spending on public services other than health in five years’ time will still be 14% lower on a per head basis than in 2010-11, the IFS estimated.

Britain is also at risk of needing to spend more in the short-term.

“As the situation evolves, if we need to do more, I of course stand ready to respond,” Sunak told Talk Radio on Thursday.

On Wednesday, the head of the United Kingdom Debt Management Office told Reuters the 156 billion pounds of government bond issuance planned for the next 12 months could well be revised up.

Reporting by David Milliken, editing by Andy Bruce