Rishi Sunak’s emergency Plan for Jobs to tackle the coronavirus (Covid-19) crisis will involve up to £10bn less spending on previously planned projects, economists said.
Analysis by the Institute for Fiscal Studies (IFS) revealed that the proposals – which the chancellor said could amount to up to £30bn of support – are partly funded by spending cuts on previously planned projects and investments which are now deemed less of a priority or infeasible given the Covid-19 plan.
The think-tank was critical of the “lack of transparency” from the Treasury which is “corrosive to trust”.
All that extra money announced by govt last week not quite what it seems. https://t.co/iwaQROENHH
The “Rooseveltian” additional £5.5bn of capital spending represents an increase of precisely zero this year on Budget plans. Is a reallocation from one set of projects to another
— Paul Johnson (@PJTheEconomist) July 16, 2020
The Office for Budget Responsibility (OBR) said Sunak’s Plan for Jobs would ultimately cost around £20bn, the IFS said.
Alongside the major announcements, it was revealed “with much less fanfare” that there were reductions in previously planned spending.
According to the IFS, the Treasury’s decisions on funding for the devolved administrations suggest they expect these underspends to amount to almost £8bn, while the OBR expects it to be more like £10bn.
For instance, the IFS said the £2bn green homes grant announced by Sunak is funded from within pre-existing spending limits and almost half the £400m of cash for traineeships and apprenticeships is reallocated money.
In addition OBR reckons the total cost of the jobs package will be nearer £20bn than the (up to) £30bn estimated by HMT. Total net fiscal expansion associated with that package is, then, nearer £10-12bn rather than £30bn one might reasonably have assumed.
— Paul Johnson (@PJTheEconomist) July 16, 2020
IFS associate director David Phillips said: “In its summer economic update last week, the UK government launched its £30bn Plan for Jobs.
“What it didn’t say was that almost £8bn of that is to be paid for by spending less than previously planned on other things.
“Indeed, the whole of the £5bn of additional capital spending trumpeted by the prime minister a couple of weeks ago in fact represents funding previously allocated to other capital projects which will no longer happen this year.’
“Meanwhile, the OBR thinks the Plan for Jobs will cost £20bn, not £30bn.
“So the £30bn package turns out to be more like £12bn of additional spending plus some £8bn or so reallocated from previously planned projects.
“While such reallocations may be perfectly sensible – the Covid-19 crisis may have made some projects less of a priority or even infeasible in the short term – official policy documents should be clear what is happening and where spending is expected to be lower than previously planned.”
