By Lucy Phillips
17 May 2010
The majority of government departments are likely to have a
quarter of their budgets slashed over the next five years as Conservative
policy looks set to preside over spending cut decisions.
The Institute for Fiscal Studies gave a fresh warning today
that Whitehall would experience ‘the biggest sustained tightening since the Second
World War’ between now and 2015 if Tory manifesto plans went ahead. These set
the ratio of spending cuts to tax rises at 4:1 to cut the fiscal deficit by
£71bn by 2015.
Spending cuts in the Liberal Democrats’ manifesto were much
lower, at 2.5:1. However, Tory ministers head all the major spending
departments in the new Cameron-Clegg coalition government. The LibDems have been
given stewardship only of the departments for business and for energy and
climate change, which are mid and low ranking when it comes to public spending,
and for Scotland, for which the budget is devolved.
Carl Emmerson, deputy director of the IFS, said the cuts to
public services outside the ring-fenced NHS would be ‘very, very deep’ –
cumulating at 25% per department by 2015. But he later admitted some of this
could be offset by cuts in welfare benefits and by tax rises – neither of which
have been ruled out in the coalition agreement.
Emmerson said the ‘composition of the cure’, or the exact
ratio of tax rises to spending cuts, would be determined in next month’s
emergency Budget. A more detailed forecast for individual departments would be
set out in the autumn Spending Review.
Chancellor George Osborne’s judgement would depend on ‘how
big a problem’ was identified by the new Office for Budget Responsibility,
according to Emmerson. He welcomed the creation of the independent body, headed
by Sir Alan Budd, which he said was likely to produce more realistic economic
forecasts than previously by the Treasury. ‘I recommend they use central
assumptions and have an explicit margin of error,’ he added.
Emmerson called for the government to produce a five-year Spending
Review, rather than a three-year one, to cover the whole parliamentary term and
increase its credibility, but with a review half way through.
On the same day, Julian McCrae, a fellow at the Institute
for Government, said there was likely to be a bias towards tax increases and
cuts in benefits in the government’s fiscal consolidation plan because it simply
involved passing legislation. ‘A large parliamentary majority means things that
rely on legislation are going to be easier to go through’, he said, adding that
difficulties would emerge in negotiations within government rather than within
Parliament.
He also warned that there were few examples of successful
fiscal tightening from around the world, particularly by governments with the
magnitude of debt the UK had to offset. ‘It’s quite difficult to get a
consolidation of this scale right, particularly to get it right first time
round,’ he said.
