By David Milliken
LONDON (Reuters) – Many UK utilities risk real budget cuts, despite Minister Philip Hammond's relaxed fiscal stance, a major think tank planned ahead of a six-month budget update next month.
The Institute for Fiscal Studies (IFS) is waiting for Mr. Hammond to provide more details on the money available for a multi-year public expenditure review when he updates his budget on March 13, two just weeks before Britain leaves the European Union.
In his October annual budget, Hammond loosened the pockets of the government, providing support to the economy as it slowed down before Brexit. However, rising health spending leaves little room for other public services, the IFS said.
"This still suggests many years of austerity for many utilities – but at a much slower pace than the past nine years," said IFS research economist Ben Zaranko. .
Public services other than the health, defense and external assistance sectors saw their budgets fall by an average of 3% per year in real terms after 2010, and now expect a decline of 0%, 4% per annum in inflation-adjusted terms, according to the IFS.
"The (Minister of Finance) said that the spending review would be held in 2019, and that the time has come for the government to make long-term funding decisions," said a spokesman for the ministry. of Finance in a statement.
"Outside the (health service), the total daily expenses of the departments will now increase in line with inflation and public investments will reach levels that have not lasted for 40 years in Parliament".
Largely because of the global financial crisis, Britain's budget deficit peaked at nearly 10% of gross domestic product in 2009/10 – one of the highest in the world at that time – but is on track to fall to 1.2% this year. .
In November, Hammond said he hoped that a "double deal dividend" resulting from successful Brexit negotiations would free up more money for utilities in the multi-year expenditure review scheduled in November. 2019.
However, less than two months before Brexit, Prime Minister Theresa May failed to convince lawmakers to support the deal she negotiated with Brussels, thereby exposing the UK to a messy exit that companies fear being very detrimental.
"In the short term (…) the government could well increase the expenditures to support the economy, mitigate the impacts on the most affected sectors or areas and provide funding to the departments which must now assume additional functions, especially at the border, "said IFS. .
In the long run, higher taxes or additional spending cuts would be needed to pay for these expenses, as well as to offset the lower growth caused by trade restrictions, the IFS added.
Most economists, including those in the UK government, believe that Brexit-related uncertainty has already hurt the economy and will slow down long-term growth even with an agreement.
Last week, the Bank of England has estimated the costs so far at 1.5% of GDP, more than the projected budget deficit for 2018/20.
During the 2016 referendum campaign, Brexit supporters, including former Foreign Minister Boris Johnson, said that leaving the European Union would release up to 350 million pounds sterling per week for public services such as health care.
(This story corrects an earlier version of paragraph 3 to change the month from November to October)
(Report by David Milliken, edited by Andy Bruce)