Inflation to Wipe £24bn Off Public Spending, Think-Tank Warns
Persistently high inflation will erode the real value of the government’s planned public spending by around £24bn, a leading think-tank has warned, tightening the squeeze on Andy Burnham’s government as it weighs costly commitments on welfare and social care. The National Institute of Economic and Social Research nudged up its growth forecast but cautioned that the country faces “very difficult trade-offs”, partly because of the energy shock from the Iran war.
The warning lands as ministers debate how to fund social-care reform and manage a rising welfare bill, and it sharpens the case some are making for new taxes. Higher inflation raises the cost of servicing the government’s debt and eats into departmental budgets fixed in cash terms, leaving less room for the spending the Prime Minister has promised. Economists say the Iran-driven spike in oil prices only adds to the strain. The Chancellor faces hard choices before the autumn Budget. Watch how the government squares its ambitions with the arithmetic.