IFS says winner of 2015 election will have to impose £23bn cuts because chancellor's deficit reduction has been blown off course
Britain faces at least two consecutive austerity general elections in 2015 and 2020, the Institute for Fiscal Studies (IFS) has warned in a bleak assessment of George Osborne's deficit reduction plan.
The winner of the next election, which will probably be in 2015, will have to impose further spending cuts of £23bn over the first full two years of the next parliament after the chancellor's pledge in 2010 to eliminate the structural budget deficit was "blown off course".
In a paper compiled jointly with the Institute for Government (IFG) before Osborne's spending review statement for 2015-16 on 26 June, the IFS said historical precedents from Canada and Sweden also showed that economic recoveries usually take longer than expected.
The report said: "We should expect not just 2015 but also 2020 to be an austerity election. Spending reductions are set to be a long-term feature of the UK's public finances, rather than a short and sharp experience. When the chancellor stands up to speak on 26 June 2013 will he be frank about the long-term reality of austerity?"
Osborne is planning to outline further department cuts of £11.5bn for the next spending round period of 2015-16 in his statement to MPs on 26 June after he was forced to admit that he would fail to meet his target of eliminating the structural budget deficit within this parliament. The joint IFS/IFG paper highlights the scale of the continuing challenge when it says that whoever is chancellor after the 2015 general election will have to cut departmental spending by 7.6% in 2016-17 and 2017-18. This works out at £23bn.
The paper says: "Fiscal consolidation is taking longer than planned. The chancellor announced in the 2010 emergency budget that the budget deficit would be balanced within four years, but this is now forecast to happen in 2017-18.
"This [deficit reduction] plan has been blown off course. Balancing the structural budget deficit is now forecast to happen in 2017-18. We are still as far away in time from the target as we were in 2010."
The paper says the chancellor has run into trouble because of the lack of economic growth and not through a failure to impose spending cuts. It says: "The problems for the consolidation have come through a lack of growth in the economy, resulting in lower than expected tax revenues. This means spending as a share of GDP is higher than planned – even if the cash level of spending is as expected – which is why the chancellor is imposing a further round of spending cuts on departments."
Labour said the paper vindicates its claim that Osborne is to blame for Britain's prolonged downturn because his early cuts programme dampened demand.
Chris Leslie, the shadow financial secretary, said: "The catastrophic failure of this government's economic policies is the backdrop to the spending review. Under David Cameron we've had falling living standards and slow growth which is why, as the IFS says, we are no closer to getting the deficit down than three years ago."
But the report will also present a challenge for Ed Balls, who said this week he would use Osborne's spending plans for 2015-16 as his baseline. The report makes clear that the next chancellor will have to maintain similar cuts after the next election.
The report says Osborne has delivered his spending cuts. But it indicates that the deficit reduction plan has been slowed in part because he has postponed some tax increases. The paper says: "The repeated postponement of fuel duty escalator increases … [has] costs which run into many billions. In fact, tightening spending has contrasted with a general loosening of policy on raising revenue. The chancellor has chosen to forgo large amounts of revenue by introducing discretionary tax reductions."
The report said the government had managed to maintain broad public support for its austerity programme, despite most people believing it is being delivered unfairly. But the IFS said it was concerned that the spending review would gloss over the need for important reforms to make Whitehall a cheaper and more effective deliverer of services.
"The chancellor's speech and what he focuses on will indicate where the political energy and planning have gone in preparing the spending round. Will there be a lot of small 'good news' measures to disguise the overall impact, which was a feature of his 2010 speech, or will we see the crafting of a careful strategy which openly balances the inevitable pain in a politically sustainable way," it said.
The government has made a commitment to ringfence current spending in the health, education and international aid budgets, confining cuts in these areas to investment and capital budgets. The effect of the ringfence has been to place extra pressure on rival Whitehall departments to cut further.
The IFS says government figures show that departments such as defence and Vince Cable's business, innovation & skills could face cuts of 8.5% or more in the year after the election.
Guardian
The winner of the next election, which will probably be in 2015, will have to impose further spending cuts of £23bn over the first full two years of the next parliament after the chancellor's pledge in 2010 to eliminate the structural budget deficit was "blown off course".
In a paper compiled jointly with the Institute for Government (IFG) before Osborne's spending review statement for 2015-16 on 26 June, the IFS said historical precedents from Canada and Sweden also showed that economic recoveries usually take longer than expected.
The report said: "We should expect not just 2015 but also 2020 to be an austerity election. Spending reductions are set to be a long-term feature of the UK's public finances, rather than a short and sharp experience. When the chancellor stands up to speak on 26 June 2013 will he be frank about the long-term reality of austerity?"
Osborne is planning to outline further department cuts of £11.5bn for the next spending round period of 2015-16 in his statement to MPs on 26 June after he was forced to admit that he would fail to meet his target of eliminating the structural budget deficit within this parliament. The joint IFS/IFG paper highlights the scale of the continuing challenge when it says that whoever is chancellor after the 2015 general election will have to cut departmental spending by 7.6% in 2016-17 and 2017-18. This works out at £23bn.
The paper says: "Fiscal consolidation is taking longer than planned. The chancellor announced in the 2010 emergency budget that the budget deficit would be balanced within four years, but this is now forecast to happen in 2017-18.
"This [deficit reduction] plan has been blown off course. Balancing the structural budget deficit is now forecast to happen in 2017-18. We are still as far away in time from the target as we were in 2010."
The paper says the chancellor has run into trouble because of the lack of economic growth and not through a failure to impose spending cuts. It says: "The problems for the consolidation have come through a lack of growth in the economy, resulting in lower than expected tax revenues. This means spending as a share of GDP is higher than planned – even if the cash level of spending is as expected – which is why the chancellor is imposing a further round of spending cuts on departments."
Labour said the paper vindicates its claim that Osborne is to blame for Britain's prolonged downturn because his early cuts programme dampened demand.
Chris Leslie, the shadow financial secretary, said: "The catastrophic failure of this government's economic policies is the backdrop to the spending review. Under David Cameron we've had falling living standards and slow growth which is why, as the IFS says, we are no closer to getting the deficit down than three years ago."
But the report will also present a challenge for Ed Balls, who said this week he would use Osborne's spending plans for 2015-16 as his baseline. The report makes clear that the next chancellor will have to maintain similar cuts after the next election.
The report says Osborne has delivered his spending cuts. But it indicates that the deficit reduction plan has been slowed in part because he has postponed some tax increases. The paper says: "The repeated postponement of fuel duty escalator increases … [has] costs which run into many billions. In fact, tightening spending has contrasted with a general loosening of policy on raising revenue. The chancellor has chosen to forgo large amounts of revenue by introducing discretionary tax reductions."
The report said the government had managed to maintain broad public support for its austerity programme, despite most people believing it is being delivered unfairly. But the IFS said it was concerned that the spending review would gloss over the need for important reforms to make Whitehall a cheaper and more effective deliverer of services.
"The chancellor's speech and what he focuses on will indicate where the political energy and planning have gone in preparing the spending round. Will there be a lot of small 'good news' measures to disguise the overall impact, which was a feature of his 2010 speech, or will we see the crafting of a careful strategy which openly balances the inevitable pain in a politically sustainable way," it said.
The government has made a commitment to ringfence current spending in the health, education and international aid budgets, confining cuts in these areas to investment and capital budgets. The effect of the ringfence has been to place extra pressure on rival Whitehall departments to cut further.
The IFS says government figures show that departments such as defence and Vince Cable's business, innovation & skills could face cuts of 8.5% or more in the year after the election.
Guardian
