By Richard Johnstone | 7 December 2012
The government’s plans for public spending cuts over the next five years are beginning to look ‘close to inconceivable’, with further tax rises or benefits cuts likely, the Institute for Fiscal Studies has concluded.
In its analysis of Chancellor George Osborne’s Autumn Statement, the economics think-tank said the outline spending plans meant council budgets faced total cuts of 31.5% over the eight years to 2017/18.IFS director Paul Johnson said Osborne’s announcement of a further year’s consolidation from April 2017 means budgets for public services – other than the protected NHS, education and international development areas – faced a ‘torrid time’.
He added: ‘The big decisions over spending allocations for 2015/16 are promised in a Spending Review next year. But the outline of that review is beginning to take shape. Yesterday’s cuts will reduce benefit and tax credit spending by some £3.5bn in 2015/16. Protection for the NHS, schools and overseas aid was confirmed for another year.
‘Roll forward to 2017/18, and if the NHS and schools continue to be protected, and no more welfare cuts or tax rises are found, then these unprotected spending areas – police, local government, defence, environment, transport – face cumulative real terms cuts of 16% in the three years to 2017/18,’ he added.
However, Johnson said the fact that these reductions appeared to be inconceivable meant that further welfare cuts and tax rises ‘must be on the cards’ in 2016/17 and 2017/18. To continue cutting departmental resource spending at the same rate as over the Comprehensive Spending Review period, an additional £4bn would have to be raised over those two years.
The think-tank also highlighted that only £4.5bn of the £10bn of cuts in benefits planned by the government were revealed in the Autumn Statement. Osborne announced then that most benefits would be uprated by just 1% over the next three years, and not linked to inflation.
To avoid the cuts in spending, ‘big choices’ would need to be made in both spending on health and welfare, Johnson said. ‘And it is hard to believe that there won’t be more tax rises to come.’
The analysis also found that the changes announced in the December 5 statement mainly hurt the rich and the poor. Cuts to pension tax relief and a smaller-than-expected increase in the threshold at which earners start paying the higher rate of income tax hit mainly wealthy households, with the richest 10% of the population set to lose around 0.5% of their net incomes.
The smaller increase in benefits will hit the poor, with the bottom 20% on the income scale likely to lose more than 1.5% of net income, the think-tank’s analysis concluded.
