'Colossal' spending cuts to come, warns IFS

The plans set out by George Osborne in the Autumn Statement on Wednesday will require government spending cuts "on a colossal scale" after the election, an independent forecaster has warned.

The Institute for Fiscal Studies (IFS) said just £35bn of cuts had already happened, with £55bn yet to come.

The detail of reductions had not yet been spelled out, IFS director Paul Johnson said.

As a result, he said it would be wrong to describe them as "unachievable".

However, voters would be justified in asking whether the chancellor was planning "a fundamental reimagining of the role of the state", Mr Johnson told a briefing in central London on Thursday.

If reductions in departmental spending were to continue at the same pace after the May 2015 election as they had over the past four years, welfare cuts or tax rises worth about £21bn a year would be needed by 2019-20, at a time when the Conservatives were committed to income tax cuts worth £7bn, according to the IFS.

Mr Johnson added: "One thing is for sure - if we move in anything like this direction, whilst continuing to protect health and pensions, the role and shape of the state will have changed beyond recognition."

Different choices

Asked about spending cuts to come in the next parliament, Mr Osborne told BBC Radio 4's Today programme earlier: "I think we should have a balanced package, which includes savings on welfare, it includes difficult things like freezing working age benefits, but the alternative is that the poorest in our country would suffer most as the economy went back into crisis'.

Shadow chancellor Ed Balls said that Labour would clear the deficit in the next parliament but would make "different and fairer choices" to the Conservatives.

Mr Johnson said the plans set out in the Autumn Statement implied "a slight increase in the speed of proposed spending cuts after 2015-16", extending the expected period of reductions in state spending for a further year beyond 2017-18, Mr Johnson said.

To achieve the Office for Budget Responsibility's forecast of a budget surplus of £23bn by 2019-20 would require "spending cuts on a colossal scale ... taking total government spending to its lowest level as a proportion of national income since before the last war," he said.

On the measure of total government spending minus spending on debt interest, public expenditure was down by £11bn over the four years to 2014-15, but was set to fall by a further £38bn in the five years to 2019-20.

'Modest' stamp duty reform

"There is no spending dividend on the horizon; far from it," Mr Johnson warned. "There are huge cuts to come. On these plans, whatever way you look at it, we are considerably less than halfway through the cuts."

He added that if healthcare and state pensions were protected from cuts after the election in the same way they had been by the coalition government since it was elected in 2010, they could be expected to account for a third of all state spending by 2019-20 - up from a quarter before the crisis - before any additional spending on the NHS was factored in.

Mr Osborne's failure to meet his initial target of eliminating the deficit by the end of the Parliament was "emphatically not" a result of the government holding back on spending cuts, said the IFS.

The "disappointing" outcome on the deficit - which fell just £6bn to more than £90bn this year - was "because the economy performed so poorly in the first half of the Parliament, hitting revenues very hard", said Mr Johnson.

In addition, tax revenues are not expected to rebound to pre-crisis levels, the forecaster estimated.

The IFS said the changes to stamp duty did not go far enough

The IFS said the reform of stamp duty was welcome but modest, turning a "very bad tax" into just a "bad tax". The Institute argued that properties shouldn't just be taxed when they changed hands, but on a regular basis, every year for example.

Despite the reforms making house purchases cheaper for 98% of home-buyers, revenues from residential stamp duty were still forecast to increase from £7bn in 2013-14 to £16bn in 2019-20, the IFS noted.