IFS calls for clarity on next phase of spending cuts

20 Mar 15

The head of the Institute for Fiscal Studies has called on George Osborne to set out where his planned £12bn in welfare cuts would fall in the first two financial years of the next parliament.

In his analysis of Wednesday’s Budget, Paul Johnson said the Office for Budget Responsibility forecast that public spending would be on a ‘rollercoaster’ ride could be mitigated by welfare reductions.

Without reductions in welfare spending, cuts of more than 5% implied in each of 2016/17 and 2017/18 are twice the size of any year’s cuts over this parliament, Johnson acknowledged, and Osborne must therefore set out more details in these plans.

‘The chancellor argues that because he is committed to £12bn of welfare cuts and £5bn of anti tax avoidance measures the required cuts to public service spending are much more modest.

‘But if he really wants us to believe that, then he needs to be more explicit about how he actually thinks he can cut welfare spending and raise substantial additional sums from clamping down on tax avoidance.’

Johnson said the actual path of spending cuts over the next parliament seems more uncertain than ever.

‘My guess is that, even under a majority Conservative government, annual cuts in public service spending will not turn out much more dramatic than those we have seen over this parliament. We won’t be on the OBR's rollercoaster.

‘But it is a terrible shame that, despite all the mass of information in the Economic and Fiscal Outlook [produced by the OBR], I am left guessing. Whitehall departments are going to have to plan for some dramatically differing scenarios, one of which they will have to implement in just 12 months time.’

Speaking at CIPFA’s World Class Performance Symposium yesterday, Julian Kelly, the Treasury’s director general of public spending and finance, said the Budget set out plans to continue in aggregate with the same rate of cuts in the next parliament as since 2010.

Kelly said the forecasts from the OBR, which required the balance of public spending cuts to come from departmental spending, would be very challenging to deliver if they were required. However, his ‘best guess’ was that not all deficit reduction would come from spending cuts in the next parliament.

‘My guess is that Labour and the Liberal Democrats would do more on tax as well as spending, and the Conservative Party has said they will do more on welfare and departmental spending.

‘But the key thing to hold onto is that this is essentially the same level of aggregate reduction as we achieved last time round. So I look at it and say, “This is still challenging, because you’ve done it once and you have to do it again,” but this is basically keeping on going at the same rate.’

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