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UK: Public services to face budget cuts of up to £18 billion per year

UK: Public services to face budget cuts of up to £18 billion per year

UK Chancellor of the Exchequer, Kwasi Kwarteng, has reportedly confirmed that the country’s public services spending will be cut by up to £18 billion ($20.5 billion) annually. The announcement came minutes after the government dropped plans to cut the top rate of income tax from 45% to 40%.

Kwarteng stated that the budget will not be increased on the account of rising inflation, which economic experts believe will have an ‘extraordinary’ impact on schools and NHS.

The chancellor claimed that it is ‘a matter of good practice and really important’ that they continue operating within the allocations that were made last year, even though the inflation peak forecasted at the time (4%) is now more than double that (9.9%).

However, the Institute for Fiscal Studies (IFS) warned that an additional £18 billion ($20.5 billion) will be needed over the next two years to restore the real terms of the ‘generosity intended’ in 2021.

This confirmation by Kwarteng comes at a time when Treasury is planning a real terms cut to benefits in order to fund the massive tax giveaway which will continue despite the U-turn on the 45p rate.

Public services spending is set in cash terms, meaning that if the forecasted rate of inflation changes, the budget will not automatically change.

At the time of allocation, as per the Comprehensive Spending Review, inflation was forecasted to peak at 4.4% in 2022, and so an extra £100 billion ($114 billion) annually was set aside for public services accordingly. But the reality caught almost everyone off-guard, and now the inflation is expected to reach 11% by October end and remain in double digits for the coming months.

The newly elected PM, Liz Truss, has suggested holding an emergency spending review.

Torsten Bell, chief executive of the thinktank Resolution Foundation, stated that double-digit inflation will put a further squeeze on hospital and school budgets, along with those of households.

The decision to cut spending comes amidst growing alarm over increasing cuts in school spending, NHS patient backlog, social care crisis, and huge delays in the justice system in the country. 

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Meghna Singh

An English Literature graduate, Meghna Singh ventured into the profession of content development to incorporate her knack for writing articles across verticals including technology, healthcare, business, and alike for News Origins and Newsorigins. She has also completed her MBA in Tourism and worked as a content creator in the field of product development.