Six years of cuts ‘extraordinary’, says IFS
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.’
