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Last Updated: Wednesday, 25 January 2006, 12:55 GMT
UK 'at risk of spending squeeze'
UK Chancellor Gordon Brown
Gordon Brown's 'golden rule' could be in jeopardy
The government risks having to squeeze spending on police and transport if it is to keep its promises on health and education, an independent report warns.

In its Green Budget, the Institute for Fiscal Studies says Chancellor Gordon Brown needs to raise taxes by 2.5bn over three years to meet current plans.

But even that only produces 0.8% growth in spending, aside from health, education and fighting poverty.

If the UK economy underperforms, that could mean cutbacks, the IFS warns.

The period covered by the IFS's Green Budget takes the government to 2010-11 - well past the likely dates of the next general election.

According to IFS director Robert Chote, the result could be that both Conservatives and Labour are forced onto very narrow ground when it comes to public spending.

"The numbers the chancellor is pencilling in will leave very little room for manoeuvre for the Conservatives," he said.

"Could the Conservatives suggest an even tighter squeeze to pay for tax cuts? It might suit both parties to play down the tax-and-spend debate in the next campaign."

Tax gap

In last year's Green Budget, the IFS estimated that there was an 11-13bn gap in the public purse.

The Chancellor announced in his December Pre-Budget Report that he would cut spending in 2006-7 by 8.5bn.

Even if these cuts go ahead as planned, modest tax increases - of about 80 per family per year - will still be needed, the IFS calculates.

The chancellor is likely to be overestimating growth too, the IFS says, which could mean lower tax receipts - and therefore an even bigger hole to plug.

Breaking the rule

When Labour came to power in 1997, Mr Brown said he would set himself a "golden rule" - that he would keep the public accounts in balance over the course of each economic cycle.

Last July, he changed the dates over which the cycle would be measured.

But the IFS says the "golden rule" is set to be narrowly broken, with the books in the red by about 0.7bn in 2008-9.

The Pre-Budget Report suggested the UK would complete the cycle with 12.8bn to spare.

While the breach would be "economically insignificant", the IFS said the change of timing had "helped undermine the credibility of the fiscal framework".


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