Budget 2011: Inflation to make cuts bigger, says IFS

The government's £81bn cuts target could be hit by inflation

Rising inflation means cuts to public service spending are bigger in real terms than they would otherwise have been, a financial think tank says.

Cuts will on average be one percentage point greater over the next four years than announced in the spending review, the Institute for Fiscal Studies says.

The IFS says that means that cuts will therefore "be harder to deliver".

The planned £81bn cuts could lead to the loss of 490,000 public sector jobs. UK consumer price inflation is 4.4%.

'Barely true'

It also said that as far as public finances were concerned "the totality of measures announced in [Wednesday's] Budget was a fiscal non-event".

In its Green Budget, released the day after Chancellor George Osborne revealed the UK Budget for 2011, the IFS also turned its gaze to government promises on the health service.

"In terms of the government's pledge to grow NHS spending in real terms year-on-year, this will now be only barely true between 2010-11 and 2011-12," it said.

"If 2010-11 spending had not turned out less than planned, there would have been a small real cut in 2011-12.

"The government is sailing perilously close to the wind with respect to honouring this particular pledge."

'Formidable' cuts

On Wednesday, the think tank said the government's prediction of a return to fiscal health by 2014-15 hinged on the "unobservable" growth potential of the economy.

The forecasted return to surplus in the latest budget was even more dependent on a pick-up in growth in 2013, said the IFS.

It came after the Office for Budget Responsibility (OBR) cut its growth projections for the next two years.

And the IFS said following the Budget that the planned cuts over the next four years remained "formidable".

Last October, it had said that poorer families with children would be the "biggest losers" in the cuts.

That analysis was derided at the time by Deputy Prime Minister Nick Clegg as "complete nonsense" in a spat with the think tank.