01 February 2008
The government will find itself under pressure to top up public sector spending if it is to meet its policy commitments, the Institute for Fiscal Studies has predicted in its annual 'green budget'.
Chancellor Alistair Darling would also need to raise another £8bn in taxes in this year's Budget to keep public sector debt below the government's self-imposed limits, the think-tank said.
The IFS said funding announced in last year's Comprehensive Spending Review would need to be topped up. 'We estimate that in 2010/11 [the government] would need to find an extra £3.4bn to meet its child poverty target and an extra £6bn–£10bn if it wished to provide the resources for the health service that Sir Derek Wanless has argued would be necessary to achieve a world-class service,' the IFS says.
'The government may also face pressure to top up the grant settlement for local government if it wishes to avoid big council tax rises or the blame for widespread capping.'
It warns that 'we expect the government to have to borrow more than £40bn this year, next year and in 2009-10'. This would push public sector net debt up to the government's ceiling of 40% of national income in 2009/10, hitting 41.2% by 2012/13.
IFS senior research economist Gemma Tetlow said it was 'unlikely that the Budget will see any large increase' on the funding announced in the CSR.
The IFS forecast – produced in collaboration with Morgan Stanley – predicts that the chancellor will avoid a significant fiscal tightening, not least because of the 'government's political difficulties'.
PFfeb2008
