UK government planning biggest fiscal consolidation of 32 advanced economies, says IFS

If Osborne's new plans to meet fiscal targets were to be implemented, public spending would hit lowest level since 1948

Despite cuts in working-age benefits, there has been ‘no real reduction in spending on social security’ over this parliament. This is what the IFS has stated today in its Green Budget, alongside warnings that the Tories’ planned cuts would not significantly reduce social spending.

The IFS finds that the Conservative’s planned two-year freeze for all non-disability benefits for those of working age would reduce spending by less than £2.5 billion. To achieve a £13 billion cut in spending, that would mean freezing all other benefits and tax credits (excluding state pensions) for the entire duration of the next parliament.

This equates to taking an average of £800 a year from 16 million families.

The Green Budget also estimates that under current policy, fiscal drag would cause the number of families losing some or all of their child benefit to more than double over the next ten years.

Paul Johnson, director of the IFS said:

“Mr Osborne has perhaps not been quite such an austere chancellor as either his own rhetoric or that of his critics might suggest. He deliberately allowed the forecast deficit to rise as growth undershot in the early years of the parliament.

“He has not cut spending in real terms as much as planned, as inflation has undershot. And he has cut departmental investment spending by only half as much as he originally planned. One result is that he or his successor will still have a lot of fiscal work to do over the course of the next parliament.

“The public finances have a long way to go before they finally recover from the effects of the financial crisis.”

IFS analysis suggests that the UK is planning the biggest fiscal consolidation out of 32 advanced economies over the next five years; this is because the deficit remains at 5 per cent of national income.

Almost all of the remaining consolidation is planned to come from spending cuts. If the plans Osborne laid out into the Autumn Statement were implemented, we would see public spending falling to its lowest level since 1948, and fewer people working in the public sector than at any time since 1971.

The IFS finds that the three main parties could all meet their fiscal targets by cutting the budget by less than planned in the Autumn Statement, although they say that continuing with Labour’s planned budget throughout the 2020s would result in debt falling by only nine per cent of GDP, compared to 19 per cent with the Tory budget.

The report also warns that rises in tax could be a possibility for any government that comes in after May’s election: a new government could raise around £5 billion by increasing the main rates of income tax by 1 per cent.

“A government looking to raise more tax revenue overall from the very well off might look at extending the reach of inheritance tax or capital gains tax, perhaps abolishing some existing reliefs.”

Ruby Stockham is a staff writer at Left Foot Forward. Follow her on Twitter

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