Page last updated at 23:32 GMT, Thursday, 10 December 2009

Darling 'must cut 36bn', IFS think tank says

Alistair Darling
Alistair Darling says health and education will be ring-fenced

Chancellor Alistair Darling has not revealed all the cuts needed to cut the UK's deficit, experts have warned.

Public spending is facing a £36bn squeeze from 2011 - with £15bn of the cuts needed yet to be identified, the Institute for Fiscal Studies has said.

With health and education protected, the axe would fall on defence, housing, transport and higher education.

Justice Secretary Jack Straw said the IFS had not taken into account savings the government has already made.

'Political statement'

He told BBC News: "We've already spent £4bn less on unemployment benefits and income support for the unemployed than was anticipated."

Because they are not discussing priorities openly a great deal of damage is being done
Vince Cable, Lib Dem Treasury spokesman

The government hoped to make further savings by "moderating the rate of increase of unemployment", he added.

Mr Darling has continued to face accusations that he is withholding the full extent of the cuts required until after the election.

And BBC political editor Nick Robinson said he understood the Treasury and No 10 have been at odds over the issue of public spending next year.

Gordon Brown had won out, he said, in his insistence that existing commitments to boost spending by £30bn must be maintained.

Philip Hammond, for the Conservatives, said the IFS report "underlines the fact that the PBR... was a political statement designed for electioneering purposes rather than to address the real needs of the country".

In its report, the IFS estimates the cost to families of paying back the national debt is £2,400 a year for eight years.

This would come from tax increases, such as the 0.5% rise in National Insurance from 2011 announced by Mr Darling in his pre-Budget report on Wednesday, and the impact of spending cuts.

The IFS says whichever party wins the next general election will have to cut 6.4% per year between 2011 and 2014 if they want to protect schools, hospitals and increase overseas aid, as both Labour and the Conservatives say they do.

The think tank predicted "severe cuts" elsewhere, of the kind not seen in Britain since the late 1970s, potentially across departments such as housing, transport, higher education and even defence.

The clampdown could even mean that all of Labour's increase in public spending since it came to power could be unwound by 2018, the experts warned.

The IFS also estimated that Mr Darling had a 25% chance of missing the government's own Fiscal Responsibility Bill target, compelling it to halve Britain's record £178bn budget deficit in four years.

But they were also critical of Conservative plans to tackle the deficit, saying it had a 16% chance of success.

Of the £36bn in public spending cuts needed, the IFS said £12bn will come from efficiency savings - although it warns that the government has fallen short of its previous targets for efficiency savings - and £3.4bn will come from the public sector pay cap announced in the pre-Budget report.

Union anger

A further £1bn will come from cuts to public sector pensions and £5bn from already announced scaling back of spending programmes like IT, legal aid and prison management.

That would leave £15bn of unidentified cuts.

The IFS also warns that debt levels could remain high "for a generation" - at about 60% of national output - without policies to tackle the impact of the ageing population on the UK's public finances.

Lib Dem Treasury spokesman Vince Cable, who argues that no areas of public spending should be off limits when it comes to cuts, called for a "proper debate" on where the axe should fall.

"Because they are not discussing priorities openly a great deal of damage is being done," he told BBC News.

TUC General Secretary Brendan Barber called for "radical new thinking" to avoid cuts to services and warned of possible industrial action over the "unfair" public sector pay freeze.

He said there should be a "fairer contribution from the wealthiest" to help pay off Britain's debts.

But BBC economics editor Stephanie Flanders said the IFS analysis also suggested the tax rises in the pre-Budget report would "overwhelmingly" impact on the top 10% of earners.

"Their income, if nothing else changes, will be cut by 5% by 2012," she added.

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