Worst cuts yet to come, warns Institute for Fiscal Studies

Britain faces at least five years of savage pending cuts if deficit reduction plans announced by chancellor George Osborne are enacted, according to the respected Institute for Fiscal Studies (IFS).

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Britain faces at least five years of savage pending cuts if deficit reduction plans announced by chancellor George Osborne are enacted, according to the respected Institute for Fiscal Studies (IFS).

Speaking the day after the chancellor delivered his Autumn Statement, director the the Institute for Fiscal Studies Paul Johnson said the “relatively easier cuts” had already been made and that departmental cuts of “up to 50 per cent” may be required to balance the books.

He told the Today programme on BBC Radio 4:

“The scale of the cuts has been added to by one year further. We are looking at a world in which only about 40 per cent of them have been carried out in this Parliament, with 60 per cent to come. Cuts of up to 50 per cent per head in some of those non-protected department. Not even very close to halfway there.

“If you look at the non-protected departments if all of these cuts go all the way through, those are cuts of half or indeed more on average over the whole period. I think that’s one of the challenges for the government.

“It’s no is no good us saying ‘this is a very big number, you can’t do it.’ The chancellor has quite reasonably pointed out people said back in 2010 what was intended over this parliament was very big and very challenging. He’d say we’ve managed to deliver those cuts and we’ve more than delivered those cuts.

“Even if it has not been too difficult over this period, that doesn’t mean it won’t be difficult over the next period.

“Apart from anything else, they have done the relatively easier things first. And, of course, we’ve actually had a relatively easy environment for doing it. Private sector wages have been very weak, which has made it relatively easy to keep public sector wages down. If private sector wages start to grow, as we hope they will, it will be much harder to keep public sector wages down.”

The IFS’s comments come on the back of a warning from the Office for Budget Responsibility (OBR) that public spending would fall from £5,650 per head in 2009-10 to £3,880 in 2019-20. It added that public services spending as a share of GDP would be at a level not seen since the late 1930s.

Because George Osborne’s deficit reduction plans faltered in the first half of this parliament (largely because the economy wasn’t growing and therefore tax revenues were poor) over half (60 per cent) of the chancellor’s total spending reduction is forecast to occur in the next parliament.

Meanwhile Lib Dem business secretary Vince Cable accused the Conservatives of wanting to reduce the deficit “brutally”, adding that Osborne’s plans were “simply not realisable”.

According to the OBR’s distributional analysis of the chancellor’s Autumn Statement (see chart), the top 10 per cent are set to lose out the most from proposed tax and benefit changes. However the poorest are also being hit hard, largely due to changes taking place in the benefits system.

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7 Responses to “Worst cuts yet to come, warns Institute for Fiscal Studies”

  1. Kryten2k35

    All the more reason to vote these scumbags out.

  2. swat

    Its good that we have Think Tanks like IFS and Independents like OBR, to comment objectively on policies of the Governing Party. Which begs the question, why is Balls so scared of presenting Labours better and detailed proposals. Is he afraid they will be torn to shreds. It makes me angry that Balls is expecting people to vote Labour on not even empty promises but mere trust! Does he think the electorate are stupid or something?

  3. Leon Wolfeson

    Austerity creates the “need” for austerity, water is wet.

  4. Peter Martin

    Of course we heard all this before in 2010 when the Coalition promised to produce a surplus. It was a silly promise to make. Given the state of the UK economy at present it is just not possible to produce a surplus. In fact we need our deficits to keep the economy moving and it’s good that we still have them!

    To understand why the deficit never goes away, as one might think it should, from simple calculations of money spent and future money received from taxation revenue, we need to look at the problem from a slightly different angle.

    The Government’s deficit is the difference between what it is spending into the economy and what it gets back in taxation. So what can stop it coming back?

    If I save a pound either in a piggy bank or by buying a government bond, which has been issued into the economy by Govt spending, then that pound is cannot be returned to the government in taxation while I’m saving it.

    If I buy an item from China, say on eBay, for a pound, (similarly issued by government) then that pound will never come back to the government in taxation until China decides to become a net importer. That pound will, most likely, end up saved in China’s central bank.

    Therefore we can say:

    Government Deficit = Net Savings of the Private Sector + Net Imports.

    So if the Govt wishes to close its deficit it has to curb the net saving of money, which has already happened, and it has to close the trade gap but which hasn’t happened, Germany has an export surplus, and the above equation shows why that can be translated into not having any Government deficit.

  5. MrJonathanHornby

    The difference between the Labour and Conservatives parties is …. a rounding error.

  6. swat

    … and mercury is dry

  7. Nate Fills

    Without a pay rise, people are increasingly forced to cut back on spending and saving as prices head ever upwards and apply for UK loan online 24/7 services. The downward spiral continues while the banks will be happy that we’re taking on additional debt, which is where you’re average Tory MP’s exit strategy lies anyway. Only then will borrowing come down in a meaningful way, which will start to reduce the deficit and debt, and ultimately reduce the growing inequality.

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