Page last updated at 03:51 GMT, Thursday, 17 September 2009 04:51 UK

Cuts may match Labour's spending

Houses of Parliament
MPs have been discussing the level of cuts to public spending

The billions spent on public services over the past decade will have to be clawed back in public spending cuts, an independent think tank report suggests.

The Institute for Fiscal Studies (IFS) says tax increases or reduced welfare payments are the only way to avoid a huge reduction in public spending.

The potential spending cuts could mean that the amount spent by Labour over the past 12 years could be wiped out.

The Tories revealed on Wednesday they had a leaked Treasury document on cuts.

The new analysis from the IFS suggests the amount of money that will be cut in spending because of the recession and banking crisis could match the rise in spending on services like schools and hospitals in the last decade.

'Spending squeeze'

In 1999 public spending stood at 36% of the national income, and it is now nearly 44%.

The IFS says all political parties face painful choices over when to cut spending, whether to commit to more tax cuts instead or whether to cut the amount of money available for social security.

Shadow chancellor George Osborne has said the leaked Treasury figures suggest Labour is preparing 9.3% departmental budget cuts over the four years from 2010.

"This would be the tightest squeeze in spending on public services since the UK was negotiating its spending plans with the International Monetary Fund in the late 1970s," said the IFS in a statement.

"If the government wished to avoid real cuts in departmental expenditure limits (DELs), then it would need to implement tax increases or welfare cuts equivalent to 2.1% of national income - £29bn or £930 per family per year in today's terms," it said.

"If an incoming government wished to complete the entire tightening in four years rather than eight, and was happy to see DELs fall by 2.9% a year as the internal Budget 2009 projections imply, then tax increases or welfare cuts worth 3.1% of national income - £44bn or an average of £1,400 per family - a year would be needed.

Leak inquiry

The Treasury is launching an inquiry into how internal documents, prepared at the time of the April Budget, ended up with the Conservatives.

Government officials have stressed spending plans have not been fixed beyond 2010/11, because of the current economic uncertainty.

Mr Osborne said the leaked documents show Gordon Brown "misled" Parliament on the scale of planned spending cuts.

Conservative leader David Cameron also told his monthly press conference the document showed Mr Brown had been engaged in a long-term "cover-up" of plans to cut public spending.

The prime minister's spokesman would not comment on the leaked document, saying there were "a number of documents that would be around that would have within them assumptions at various stages of the planning process".

He added: "It is an obvious statement that the prime minister would never mislead Parliament, clearly."

The Liberal Democrats' Treasury spokesman Vince Cable told the BBC the Conservatives were trying to "make a big political issue out of this".

"I wasn't misled. I think we all realised, who have studied government documents, that cuts were on the way," he said.

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