According to the Institute for Fiscal Studies, a high inflation rate will wipe out a significant portion of the increase in actual planned spending on public services.
It estimates the Treasury will have to find an additional £8 billion this financial year to offset the impact of inflation.
The IFS said the boost to public services from government spending plans is now “significantly less generous” than originally intended last fall.
The research organization estimates that the average real-term growth in daily public service funding over the next three years has fallen from 3.3 percent initially planned to 1.9 percent annually.
In other words, higher-than-expected inflation would “wipe out” a significant portion – more than 40% – of actual planned increases, it said.
To remedy this, IFS estimates that the Treasury will need to further increase its spending plan by more than £8 billion this year, in 2022/23.
It will then need to do the same for around £18 billion in each of the next two years, 2023/24 and 2024/25 – and even this “could be an understatement” for what is required. , said the research team.
Ben Zaranko, senior research economist at IFS, suggests the two remaining candidates for the next prime minister, Liz Truss and Rishi Sunak, should lay out a plan to counter the challenge.
“Higher inflation makes government spending plans less generous than originally expected,” he said.
“The choice not to compensate parts because of unexpectedly high cost pressures would be a likely response to a series of global economic shocks that have made us poorer as a country, but will put significant pressure on public services as winter enters.
“We’ve heard a lot about the Conservative leadership candidates’ tax cuts.
“With the inflation-induced squeeze on departments and especially the obvious signs of stress in the NHS, it’s up to Mr Sunak and Ms Truss to map out their plans and vision for public spending and Public service can also make sense.”
A spokesman for the Sunak campaign insisted the former prime minister had been “consistent and clear” about the “evil” threat of price hikes.
They accused Ms Truss of orchestrating tax cuts that would “add fuel to the fire of inflation”.
The Treasury Department said the government was “taking important steps to control inflation”.
A spokesperson said: “The plans announced at the 2021 Spending Review mean total departmental spending will increase to £566 billion in 2024-25 – a cash increase of 150 billion. pound”.
“The government continues to focus on delivering our priorities efficiently and on budget, delivering value for money for taxpayers.
“The government is taking important steps to control inflation through strong, independent monetary policy, responsible tax and spending decisions, as well as reforms to boost productivity and our growth.”