Rishi Sunak's public sector pay freeze 'no way either to spend public money or to treat public sector workers' says IFS

The Chancellor’s public sector pay freeze is “no way either to spend public money or to treat public sector workers,” the director of the Institute for Fiscal Studies (IFS) has said.

Paul Johnson described Rishi Sunak’s spending review as “pretty austere” and said some decisions appeared to be “driven by politics and not by economics”.

He said that while the review may not represent a return to austerity that it could feel like it for some public services.

Johnson made the comments in a briefing on Sunak’s spending review on Thursday.

He acknowledged the “record breaking” levels of borrowing and the “astounding” deficit predicted in the coming months.

But he said it was a “shame” that it took until Thursday to get a full picture of the government’s COVID-19 spending.

“We have had far too many announcements without costings attached either from Treasury or from the OBR,” he said.

“Nearly all of the £80bn of spending in addition to the £200bn acknowledged in the Summer economic statement was committed well before yesterday but only now do we have an estimate of the cost.”

“That’s not good enough,” he added.

Johnson identified three financial risks from Sunak’s spending plans.

He doubted whether spending really would remain as low as Sunak planned, saying it was unlikely that his decision to allocate “precisely zero” for COVID-19 beyond 2021 was realistic.

He said: “I hope he is right that we will no longer need to spend anything at all on test and trace, PPE and the rest, but I wouldn’t bet on it.”

Johnson also said it was “disappointing” that the UK Government did not make an announcement on whether it would or would not keep the Universal Credit uplift of an additional £20 per week beyond March.

He predicted the government would be likely to give in to pressure to keep the lift.

“Put these pressures together and my central scenario would have borrowing at least another one per cent of national income higher in 2024-25 and subsequently,” Johnson said.

He said that if the chancellor did aim for current budget balance that he’d eventually need a fiscal tightening of 2 per cent of national income - about £40bn.

Johnson described the spending review as a “tax raising” review because councils would be likely to pass on a cut in support by increasing council tax by up to 5 per cent.

He described the review as “pretty austere” because of plans to reduce public service spending, other than the £55bn allocated for COVID-19, relative to plans.

He said this will mean a tougher time for some public services than expected, especially after next year.

“This may not quite be a return to austerity, but for some public services it may not feel much different,” he said.

Johnson also criticised Sunak for putting politics ahead of economics on the decision to freeze public sector pay.

He said that Sunak had “picked a big fight over not very much money” on his decision, which appeared to be “driven by politics not by economics”

He added: “This is no way either to spend public money or to treat public sector workers.”