27bn black hole in the nation's finances: More tax rises and benefit cuts are vital after the election, say experts
Institute for Fiscal Studies reveals extent of spending reductions needed to meet George Osborne's deficit targetsIf spread across Whitehall unprotected areas like defence and transport would face cuts of 16%Report also warns poorest hardest hit by 1% benefits cap for three years
23:32 GMT, 6 December 2012
Ministers must find 27billion of fresh spending cuts or tax rises to plug the black hole in the nation’s finances, Britain’s leading economic think-tank revealed yesterday.
The Institute for Fiscal Studies said Britain is on course for 7billion of tax rises and another 20billion in welfare cuts and spending reductions after the next election.
IFS director Paul Johnson also predicted that pensioner benefits such as free bus passes and television licences, and the winter fuel allowance – which David Cameron has pledged to protect until 2015 – are almost certain to be slashed after the election.
Tory Chancellor George Osborne and Lib Dem Treasury minister Danny Alexander will have to set out spending cuts and tax rises until 2018 at the next election
The cuts are needed because the
Chancellor has pledged to get the national debt as a share of national
income falling by 2017 in order to convince the markets that Britain’s
recovery plan is on track.
Leading ratings agency Fitch has already
threatened to strip the UK of its coveted AAA status in the wake of the
It said George Osborne’s admission
that he will miss a crucial target to cut the country’s debt burden by
2015-16 ‘weakens the credibility’ of the public finances.
debt back on track by 2017 will be painful, the IFS warned.
If the next government continues to
protect spending on the NHS, schools and aid, it will have to make
real-terms cuts totalling 16 per cent in 2017 in the other departments.
That would take cuts in those
departments to 31 per cent since the downturn began.
Mr Johnson said no
government would dare do this, making further tax rises and welfare cuts
Plans already announced by Mr Osborne
mean cuts account for 85 per cent of debt reductions in 2017, with just
15 per cent from tax rises.
Up to 2015, the Chancellor has pledged to achieve an 80-20 split between tax rises and spending cuts.
If he were to achieve the same
balance in 2017, it would mean tax rises of 7billion, with the rest of
the 27billion saved from cuts to defence, councils, transport and other
So far just 4.5billion of the
10billion of welfare cuts the Chancellor has said will be necessary
have been announced, suggesting the Conservatives will seek to make at
least another 5.5billion of benefits savings after the election.
But Mr Johnson said money for the NHS
and pensioners accounts for 40 per cent of public spending, and
ministers will have to take from both if they are to balance the books.
Mr Osborne insisted yesterday that Britain remained a safe bet for international investors despite fears over the credit rating.
A downgrade – which could drive up
borrowing costs for the Government, businesses and households – would be
a crushing humiliation for the Chancellor but economists warned that it
was only a matter of time before Britain was stripped of its AAA
Labour Treasury spokesman Rachel
Reeves said: ‘The reason why there is a big hole in George Osborne’s
plan is that his reckless policies choked off the recovery and have
pushed up long-term unemployment.’
Debt mountain: The UK's public sector net debt is set to get worse than previously thought
OFFICE PERKS TO BE TAXED
Tax-free office perks such as subsidised food in the staff canteen could be axed under a Treasury review of workplace expenses.
Other areas under threat include Christmas gifts from managers and a right for staff to take home products made by their employers at a reduced price.
Chancellor George Osborne has asked officials to look at the complex area of workplace expenses to see if more tax should be paid.
Documents released alongside the Autumn Statement show that the independent Office of Tax Simplification (OTS) will look at office benefits.
This could also include cheap petrol and 30,000 tax-free redundancy payments.
The Treasury said: ‘The Government will ask the OTS to carry out a review of ways to simplify the taxation of employee benefits and expenses and employee termination payments.’
It did not give further details but accountants said one proposal could be for HM Revenue and Customs to bring in a flat rate allowance per employee for expenses incurred off-site.