Thread by @ianmulheirn

After the election there's going to be a fiscal hole to fill. How big though?

A *very* fag-packet calculation suggests whoever wins needs £30-40bn just to keep the show on the road - unless something turns up

Some thinking aloud...🧵

1st some assumptions. In March HMT had just a £6.5bn margin against its debt falling target

For simplicity, assume no change to that in 2028-9. Assume too that the next gov keeps the 5-yr debt rule. Also assume nothing changes in the underlying forecast or debt service costs

This week's @TheIFS green budget has an excellent run down of some of the tax/spending risks. Some things not yet accounted for:
- £6bn to keep fuel duty frozen
- ~£6bn for full expensing (assumes half way between the £10bn up-front cost and £2bn long-term cost - here's the IFS)

- £10bn to achieve flat real spending for unprotected departments (1.5% real cuts not plausible)
- £1bn for housing benefit? (at some point the freeze has to end and rents are rising pretty fast)

- £13bn for flat real capital spending, so back to Sunak's old plans (any less is difficult given net zero, crumbling schools, hospitals, full prisons plus defence pressures)

Obvs there are totally arbitrary benchmarks.

But if you think that's a rough baseline for plausible policy, it means ~£36bn/year more tax by 2028 to get debt falling and stop things getting any worse

That's equiv to 5p on the basic rate of income tax or more than 4ppt on VAT to stop the wheels falling off 😱

There's lots more you could add. Is flat real enough for schools given the pay and recruitment issues? Is 3.6% enough for health with waiting lists heading to 8m?

Others will know much better but hard to see even +£36bn as much more than keeping the show on the road...

Let's say you wanted to improve things a bit e.g.:
- an additional 1/2% per year growth in day-to-day spending for public services would add about £10bn by 2028
- maybe £1.5bn to get rid of the 2 child limit?

At this point you're getting close to an extra £50bn per year.

So minimum £30bn and maybe up to £50bn if there's to be a sense of things improving.

Am I being too pessimistic? Is there some good news I'm missing?

The best hope is that something turns up - maybe debt interest falls or trend growth projections (already looking optimistic?) get increased.

But if it doesn't then it looks like whoever is in charge in 2025 will need to deliver some pretty bad news.

Have a nice weekend!