IFS, Bloomberg, Benzer Anko discussed on Bloomberg Daybreak Europe


Tomorrow, PPI and initial jobs claims data too, and guess what, the San Francisco fed president Mary Daly, she'll be on Bloomberg television. And in earnings, I just do this with Stephen because we all need to stay awake on a Wednesday after the bell today will Disney be waltzing after the company will be reporting its earnings and guess what? It just doesn't slow down so on Friday we'll be rounding off the week we'll get UK GDP data. We've been waiting for that, haven't we? We're going to see what's going to come and also Euro area industrial production. So lots of key points this week and sorry Alex and I were literally half asleep in the beginning of that sector. I also want to make it clear that I also understood your exceptionally strong Disney joke because he's called Walt Disney, therefore waltzing ha ha. I thought that was so good. Did you not think? So good that we deserve to hear it again. For three days in a row now. Leanne, thank you very much for that. Well, let's get back to one of the big stories here in the UK and you study by the institute for fiscal studies saying that government departments will need an extra 44 billion pounds to cope with the effect of soaring prices. The think tank says that inflation will wipe out more than 40% of the planned increase in funding for public services over the next three years. We're joined now by benzer anko senior research economist at the IFS and author of this report Ben good morning. Thank you for being with us on Bloomberg radio. Can you explain how did you come to this 44 billion pound figure? Absolutely. The 44 billion pound figure is a cumulative number for the next three years and it's basically an estimate of just how much less generous the government's spending plans have become because of higher inflation because higher inflation means that public service budgets which are set in cash terms just don't go as far when energy prices are high of food prices are higher, staffing costs are higher because you're having higher than expected pay awards, you simply more expensive to run a hospital or a school or a prison. And so I produce some new estimates of just how much it would cost for the treasury to compensate departments for that. And as you say, it's about 8 billion this year followed by 18 billion each of the next two and a B worst affected. Well, I think the way to think about it is departments that are particularly big consumers of energy are going to be especially exposed. Now we know hospitals and care homes, it's important that they are kept one for obvious reasons. But the biggest component of costs for most public services is staffing. And when the government set out its plans for the parliament last autumn, it was all predicated on P awards of something like two or 3%. Last month, the government announced that multiple accepted workers will get something more like four and a half, 5% varies a little bit. But they're not riding any extra money. So the departments are being asked to meet the cost of those higher pay awards, but without any extra cash. And so they're having to make very difficult savings elsewhere at the same time as their energy bills are going through the roof, food bills are going up, you know, feeding a hungry lot of soldiers in an army barracks are suddenly just become more expensive. And so this is causing some real headaches right across the public sector. So those are the kind of how the departments be affected, but what sort of knock on effect could that have then on services the public are using? Well, if the, for example, the NHS has to meet all of these costs with an existing budget, something's going to have to give. If it's going to have to meet 5% pay awards, pay more to heat hospitals, something that we're going to have to give. And maybe that's reductions in headcount, maybe it means, you know, and it just doesn't set up a community diagnostic hub. It will hit services eventually. It might mean schools cutting back on a number of TAs, teaching assistants, a matter of fact, the quality of learning for some students eventually whistle feed through into lower service quality. But the candidates in the conservative leadership campaign have been very, very keen to talk about all the tax cuts that like to implement in this trust's case, perhaps immediately, there's been far less attention paid to their plans and their vision for public spending and public services and heading into what could be difficult winter. I think that's a gap that needs to be filled. Beyond sort of cutting public services, is there any other action that can be taken than any other way of sort of squaring this circle? Well, the way to square the circle would be for the treasury to provide additional funding. It's clearly the case that with higher inflation and higher nominal earnings growth, tax revenues are going to come in higher than expected. So for example, when Rishi sunak announced last year he was going to freeze income tax thresholds, he expected that to raise about 8 billion pounds per year by year four. That's now going to be more like 30 billion because of much higher inflation than what was expected at the time. So Bridgestone tires just rolled into Midas. And if you roll in, we've got an exclusive deal for you. Get $70 back and Bridgestone rebates, plus a $50 reward card with paid installation. Shop Bridgestone tires at Midas dot

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