IFS: more than half of George Osborne’s planned cuts still to bite

Thinktank’s ‘green budget’ finds national debt will only return to pre-crisis levels in the mid-2030s

The chancellor is less than halfway through his sweeping programme of public spending cuts, with more pain on the way over the next five years despite better news on the economy, according to the Institute for Fiscal Studies.

George Osborne’s decision to extend austerity to 2018-19 means that by the end of this financial year, 60% of planned spending cuts will be still to come, the IFS said in its annual “green budget”, which analyses the state of the economy and public finances.

Even with £12bn a year of additional spending cuts to social security spending, Osborne’s plans would imply cuts of more than 30% in “unprotected” public service budgets since 2010, the independent thinktank said.

The chancellor has ringfenced health, education and international aid spending from cuts.

The ambitious scale of cuts would put the UK on course to have a budget surplus by 2018-19, its first since 2000-01, but national debt would still be 76% of gross domestic product. The IFS said that even with the scale of cuts planned, national debt would only return to pre-crisis levels in the mid-2030s.

Paul Johnson, the IFS’s director, said: “Returning growth, and forecasts suggesting we should be running a budget surplus by 2018-19, should not lull us into a false sense that all is now well with the public finances.

“The outstanding debt will still be very large and the scale of additional spending cuts required to hit that budget surplus remains hugely challenging, especially on top of cuts already delivered.

“A combination of significant additional spending pledges already made and a growing and ageing population will only add to the challenge.”

The IFS said that as a result of a growing population, public service spending per head would fall by 2.4% a year between 2010 and 2018.

It added that even if the overall NHS budget continues to be frozen in real terms, real age-adjusted health spending per person would be 9% lower in 2018–19 than in 2010–11 because of the rising population of over 65s.

Carl Emmerson, deputy director of the thinktank, criticised some of the policy moves being considered by the main political parties ahead of the general election next year, including additional spending on childcare and income tax cuts.

“Despite the state of the public finances, tax cuts and spending increases are being considered by government and opposition. They seem agreed in promising additional spending on childcare despite a remarkable lack of evidence as to its effectiveness.

“They seem equally set on further cuts in income tax either through more increases in the personal allowance or the introduction of a 10p starting rate. Either could be expensive and would be poorly targeted on the low paid.”

The green budget outlined the scale of the challenge still ahead for the UK economy, despite a return to growth. Gross domestic product increased by 1.9% in 2013, and Oxford Economics, which collaborated with the IFS on the report, is forecasting growth of 2.6% in 2014.

Andrew Goodwin, senior economist at Oxford Economics, said: “The unbalanced nature of the recovery to date emphasises the need to avoid complacency. Nevertheless, we believe that an improving global outlook will provide the basis for the recovery to broaden out this year, by supporting export growth and giving firms the confidence to invest their large cash piles.”

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