By Richard Johnstone | 30 November 2011
The Institute for Fiscal Studies has described the government’s extension of its austerity drive for two years as ‘extraordinary’.
In yesterday's Autumn Statement Chancellor George Osborne confirmed that the planned four years of spending cuts would now continue into 2017.
IFS director Paul Johnson said that the current cuts were unprecedented in modern times, and that more austerity, in light of worsening economic forecasts from the Office for Budget Responsibility, would be ‘even more extraordinary’.
In his speech, Osborne announced that in 2015/16 and 2016/17, the government would continue with spending cuts of 0.9% a year in real terms. He said this represented the same rate as set out for the existing period of the Spending Review to 2014/15.
Johnson said that this represented £15bn of additional cuts by 2016/17. However, yesterday’s statement revealed ‘nothing about where these additional cuts might fall’, he added.
‘Osborne will wait before clarifying his position. One presumes that he is keeping his fingers crossed that something will turn up which will make such deep cuts unnecessary.’
Other economic forecasters warned that the OBR’s prediction for future growth remain too high, despite yesterday’s downgrade of the projections.
The OBR now forecasts that the economy will grow by 0.7% next year, followed by a 2.1% expansion in 2013 and 2.7% in 2014. This will be followed of 3% growth in the following two years.
Charles Davis, the head of macroeconomics at the Centre for Economics and Business Research, claimed that the ‘growth projection from 2014 onwards was too optimistic’.
He said: ‘The OBR forecasts a boom from 2014 to 2016 with GDP growth averaging 2.9% per annum, consumer spending growing by 2.6% a year and business investment growing by 38% in real terms.Unless the UK dramatically improves its competitiveness, we think this sort of growth performance is going to be hard to achieve.’
The National Institute of Economic and Social Research has joined the Organisation for Economic Co-operation and Development in warning that Britain might enter recession in the first half of next year.
In a statement released after the chancellor spoke, it said: ‘It remains our view that in the short term fiscal policy is too tight, and a temporary loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.’
