John Healey is facing intense scrutiny over his plans to tighten public spending around 2030, as leading economists warned the Labour government is on course to revive an austerity programme while overseeing the worst decade of living standards on record. 

Budget-crunchers at two leading economics think tanks have offered scathing assessments on the state of living standards and a myriad of spending pressures looming over the government that are likely to mean some departments are set for drastic cuts at next year’s Spending Review. 

Next year’s crucial event will set out spending plans for departmental budgets in the three years after, overlapping with the deadline for an election to be called. Healey is fighting back against criticism of his Budget, telling broadcasters the government was prepared to “control spending”. 

The Resolution Foundation said the Chancellor used the Budget yesterday to increase departmental budgets by £9bn in the current Spending Review period, which covers the years between 2025 and 2029. 

But the think tank, which used to be led by pensions minister Torsten Bell, said that a planned slowdown in the years after would put 13 government departments at risk of facing cuts that reached a “post-austerity historic low”.  

Principal economist Greg Thwaites called for the government to lead an “honest conversation” about what the state can afford. 

Speaking at an event hosted by the Resolution Foundation, Office for Budget Responsibility chair Jonathan Haskel said the watchdog’s report had its own estimates on the “gory details” around projected cuts. The watchdog said there was £11bn in cuts to departments being factored in.

Its estimates, which assume defence spending reaches three per cent of GDP by 2030 and health spending continues to rise at a rapid pace.

Separately, the Institute for Fiscal Studies’ director Helen Miller said a “sharp” slowdown in spending around 2030 underpinned key borrowing targets, after Healey maintained a fiscal headroom of around £15bn. 

She said she was “sceptical” of Healey’s plans to deliver cuts to departments, which may include the Ministry of Justice or the Home Office. She added she was “grumpy” at the Chancellor’s decision to use Treasury reserves to fund a hole in the Defence Investment Plan. He has now spent nearly 40 per cent of day-to-spending reserves in the Treasury, according to the IFS. 

“This is categorically not what the reserves are for,” Miller said. 

In its post-Budget briefing, economists warned that avoiding the cuts around 2030 would require a top-up of £17bn. 

Household income to ‘fall by £1,000’

Researchers at the Resolution Foundation criticised the government over its £2.6bn energy price subsidy package for 20m households, as chief executive Ruth Curtice said the outlook on household income was “catastrophic”. 

Its research showed that, in the 2020s, real household disposable income was set to rise by just 1.4 per cent. 

This is dwarfed by a 28 per cent rise in the ‘90s, an increase of 18 per cent in the noughties, and 14 per cent in the 2010s. 

The think tank’s report showed that between now and the end of parliament, typical incomes are set to fall by £1,050.

Anger at energy support package

Greg Thwaites, an economist at the Resolution Foundation, added that the government’s effort to give £100 to millions of families over the winter to help them with energy costs was “terribly badly targeted”.

“It was a relatively small Budget and arguably one that did not live up to the scale of the challenges,” Curtice said. 

She added that the Chancellor “got lucky” as forecasts on fiscal problems proved to be kinder to the government than believed by economists. 

Helen Miller of the IFS said the current decade looks “set to be the worst decade for growth in household incomes on record”.

“No amount of temporary cost of living packages will fix that,” Miller said. “We need a stronger economy.”

Stephanie Flanders, head of Bloomberg economics, said that the UK’s “idiot premium” in the view of traders had not gone away. 

She also warned that the OBR’s forecasts may already be out of date given the energy price cap is predicted to be some £200 higher than figures in the independent body’s report. Flanders added that this made the government’s subsidy package “puny” and “unforgiveable” as a result.