By Tash Shifrin
Most parts of the public sector could face five years of real-terms cuts to restore the public finances after the recession, if the government chooses not to push taxes up.
Most parts of the public sector could face five years of real-terms cuts to restore the public finances after the recession, if the government chooses not to push taxes up.The grim forecast came from the Institute for Fiscal Studies. It said the government would need to raise an additional £39bn – on top of the £38bn clawback set out in the Pre-Budget Report – to bring the public finances back into balance by 2016.
The IFS figures – issued in an April 3 briefing note examining the consequences of rising public borrowing and debt – almost doubles the think-tank’s previous estimate that a £20bn additional clawback would be needed.
Some of the £39bn could be found through tax rises from April 2011. But the IFS warned that there would need to be ‘a five-year real freeze in public spending’ if the government shied away from this option.
It added: ‘Because of rising real spending on debt interest payments, tax credits and social security benefits, this would require real cuts in most other areas of government spending. Even favoured areas such as health and education would undoubtedly see much lower spending growth than they have received in recent years.’
A mix of tax rises and spending restraint could be announced in the Budget.
But the IFS has pointed out that the PBR measures leaned heavily on squeezing the public sector, which accounted for 80% of the planned clawback then.
Shadow chancellor George Osborne said the ‘bulk of the strain’ on the public finances should be absorbed through spending restraint.
Estimates from the National Institute of Economic and Social Research, published on April 8, revealed no let-up in the worsening economic downturn.
Gross domestic product fell by 1.5% in the first quarter of 2009, the NIESR figures showed.
