Financial News

  • 9 December 2012, 17:48

IFS: Spending Cuts Warning After Mini-Budget

The Government's austerity plans involve slashing the majority of Government department budgets by a third, a leading think tank has warned.

The Institute for Fiscal Studies said that in order to fulfil the plans laid down in the Autumn Statement the Government would have to slash the budgets of its non-protected departments - everything but health, schools and international development - by a further 16% in real terms in the three years to 2017-18, or 30% since 2010.

The IFS said that such cuts to departmental budgets, including police, local government, defence, environment, transport were "almost inconceivable".

The think tank urged the Government to commit to doing some of the work through tax rises rather than spending cuts.

However, Conservative officials signalled that there were no plans to implement any tax rises after the election, implying that all the fiscal work will have to be done through spending cuts.

It will be seen as one of the clearest signals yet that the Conservative party intends to fight the next election on the basis solely of spending cuts rather than tax rises.

In the 2010 election, it committed to bring the deficit down through 80% spending cuts and 20% tax rises.

However, the officials said that this was no longer the plan in the following Parliament.

The IFS said that the Chancellor would need to find a further 27bn of specific spending cuts or tax rises in 2017/18, based on the latest plans, unveiled on Wednesday.

Its director, Paul Johnson, said that if George Osborne kept to his 80:20 scheme that would imply 7bn of tax rises.

With the Conservatives effectively ruling this out, attention will inevitably turn to the question of whether those Government departments are capable of weathering the extra burden.

Mr Johnson said that if tax rises are not to be considered "at some point you will have to think about health spending cuts".

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