In a new, wide-ranging, paper, Policy Exchange makes the case that Government should adopt a three-part approach to restoring the public finances: saving up to £25bn annually. This should involve a significant retrenchment on the energy plan, including a new windfall tax; efficiency savings in public spending; and radical supply-side measures to stimulate growth, including in housing and childcare. This must be embedded within a new, credible, fiscal framework that will ensure that all economic actors, including the markets, know how the finances can be made sustainable over the cycle.

Despite the Chancellor’s statement on Monday 17^th, there remains a significant gap in the public finances. Furthermore, even if the Government sticks within the 2020 Spending Review settlement, the impact of inflation will mean a real terms reduction in public spending by £23bn in 2024-25. Both now, and after the next General Election, there will be difficult but unavoidable decisions to make on public spending.

The paper sets out that both unfunded tax cuts and unfunded spending pose a threat to fiscal responsibility. The Government does have choices: if it is unwilling to retrench significantly on the energy package, to levy a windfall tax or to address major outlays such as the triple-lock, it will need to make additional savings from frontline public services.