By Richard Johnstone | 6 December 2013
Deeper cuts will need to be made to public service spending to meet Chancellor George Osborne’s target for a government surplus in 2018/19, the Institute for Fiscal Studies has said.
Analysing figures from yesterday's Autumn Statement, the economic think-tank said plans to run a total surplus in 2018/19 implied a £20.7bn public spending reduction in that year as part of attempts to keep spending flat in real terms.
As the Office for Budget Responsibility has projected that welfare spending will increase in that year, this means deeper cuts will need to be made to Whitehall departmental spending than in the government’s deficit reduction plan so far, IFS director Paul Johnson said.
Without further cuts to welfare spending or higher taxes, the Autumn Statement implies annual departmental cuts will average 3.7% from April 2016 to March 2019 – up from an average 2.3% being imposed from April 2011 to March 2016.
‘Simply to avoid such an acceleration in cuts of this kind would require additional cuts in welfare, or other annually managed expenditure spending, of a further £12bn a year from 2018/19,’ Johnson said.
In addition, the IFS highlighted that around £7bn in extra public spending commitments were likely to put additional pressures on public spending from 2016/17, but have not yet been accounted for. These include the £4bn worth of the additional National Insurance payments public sector employers will need to pay following the end of contracting out for occupational pensions. Opting out of the state second pension is ending as part of the government’s move to a single-tier state pension.
‘The chancellor continues to make specific promises on spending increases whilst stating that he will keep total spending at the same level. He can’t keep doing that,’ Johnson said.
‘And whilst the cost of his tax cuts are pretty definite, the benefits from his anti-avoidance measures and indeed of the increase in the bank levy, are less certain.’
