IFS warns of 'unprecedented squeeze' on NHS

The Institute for Fiscal Studies warns against "false sense that all is now well"

Government spending on health care is facing an “unprecedented squeeze” over the next Parliament despite the NHS ring-fence, the respected Institute for Fiscal Studies warned today.

The think tank said that even if spending on health continues to keep pace with inflation, real per capita age-adjusted spending per person will be 9 per cent lower in 2018-19 than it was when the Coalition came to power in 2010.

Four years ago the Coalition threw a protective cloak around spending on the NHS and the global aid budget, ensuring they would not face real terms cuts, while other departments endured their deepest budget reductions on record.

The IFS said that the sharp projected shortfall in spending per person on health, despite the ring-fence, was a consequence of the growing pressures of the ageing population, with the average 80-year-old requiring seven times more health spending than the average 30-year-old.

To keep pace with the ageing of the population, spending needs to grow by 1.2 per cent a year in real terms, it said. And to rise in line with growth in the wider economy, spending needs to increase by 2.4 per cent a year.

The IFS pointed out that the NHS, experienced average annual real spending growth of 6.3 per cent between 1998 and 2008. The think tank added that the likely short-fall in health spending per person was an area of “particular concern” in the context of the Coalition’s wider programme of spending cuts over the next five years.

Departmental budgets have only been set by the Coalition up to 2015-16, the first year of the next parliament, but George Osborne has laid out plans to run a current budget surplus by 2018-19, which will entail three further years of severe fiscal consolidation.

The Chancellor has said that if the Conservatives win the next election he will seek to limit the squeeze on departmental spending by cutting 12bn from the welfare budget.

But the IFS warned that even if Mr Osborne achieved these welfare cuts, some Whitehall departments would be facing budget cuts of more than 30 per cent on 2010 levels.

And thanks to various spending commitments made by the Chancellor in last year’s autumn statement, such as increasing spending on childcare and university access, departments could face even bigger reductions to meet his budget surplus target.  “The question is whether that level of spending will be acceptable to voters” said Rowena Crawford of the IFS.

However, a separate analysis by the Oxford Economics consultancy on behalf of the IFS yesterday, suggested that the large spending cuts pencilled in by the Chancellor might not be necessary, even to meet his own deficit goals.

Oxford Economics estimates that the amount of slack in the economy is currently more than twice as big as the estimate of the Government’s official forecaster, the Office for Budget Responsibility (OBR).

This implies that the deficit will naturally fall quickly as the economy grows rapidly over the coming years. If this optimistic view is correct, much of the austerity presently planned by Mr Osborne for the next Parliament to clear the deficit would be unnecessary, said the IFS.

Oxford Economics estimates that the so-called “output gap” of the British economy is 5 per cent of GDP. The OBR judges the degree of slack to be just 1.8 per cent of national output.

 Andrew Goodwin of Oxford Economics also said that the Chancellor’s controversial spending cuts and tax rises since 2010 had depressed the economy more than initially expected, contrary to the view of the OBR which said that the weak economy until last year was a consequence of high inflation and the turmoil in the eurozone.

In an analysis of the tax proposals of the Coalition and the Labour Party, the IFS said neither further hikes in the income tax personal allowance nor the re-introduction of a new 10p starting rate of tax would do much to help lower-income workers, with the benefit mainly flowing to wealthier people. “It is hard to find a coherent economic rationale for it” said the IFS.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Finance Assistant / Credit Controller

£16000 - £18000 per annum: Recruitment Genius: They are an award-winning digit...

Ashdown Group: Senior VMware Platform Engineer - VMware / SAN / Tier3 DC

£45000 - £55000 per annum + benefits: Ashdown Group: Senior VMware Platform En...

Recruitment Genius: Purchasing Assistant

£10000 - £16000 per annum: Recruitment Genius: A distributor of specialist ele...

Recruitment Genius: Sales Ledger Assistant

£17000 - £19000 per annum: Recruitment Genius: A distributor of specialist ele...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable