Investments  

‘We are considerably less than half way through cuts’

The Institute for Fiscal Studies has delivered a damning analysis of the public finance picture underlying chancellor George Osborne’s Autumn Statement, pointing out that rather than a spending dividend on the horizon there are “huge cuts” to come.

Paul Johnson, director of the IFS, introduced the organisation’s review by noting that some of the biggest announcements were not from the chancellor at all, but from the independent Office for Budget Responsibility.

“The first was a really substantial downgrade to expected tax revenues. It’s the fall in expected revenues of nearly £8bn this year which accounts for the disappointing fall in the size of the deficit.

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“Look out just three years to 2017/18 and the shortfall hits £21bn. This lack of buoyancy in tax revenues, associated with poor earnings growth, looks like being a continued cause for concern.”

This was hidden because the OBR made an offsetting forecast change to expected spending on debt interest, predicted to be about £16bn lower in 2017/18 than was forecast back in March.

Mr Johnson stated: “The chancellor also changed some headline numbers of his own. Over the past few days you might have been forgiven for thinking that there was to be some kind of spending dividend to come.

“More money announced for the NHS, much made of how transport and flood defence spending is to be allocated; that is not the story the numbers tell.”

He explained that there is actually set to be a slight increase in the speed of proposed spending cuts after 2015/16 and the numbers have been pushed out to 2019/20 for the first time.

“With a presumption that total spending will be unchanged, the implication is that there will be yet another year’s worth of cuts in public service spending.

“So there is no spending dividend on the horizon. Far from it. There are huge cuts to come. On these plans, whatever way you look at it, we are considerably less than half way through the cuts,” he added.

On the headline changes to stamp duty, Stuart Adam, senior research economist at the IFS, said that moving away from a ‘slab’ structure is a clear improvement, but questioned why this only applied to residential property.

“All the arguments for reform apply to non-residential property too,” he argued, stating that the stamp duty tax was still fundamentally flawed and should not tax transactions at all.

Mr Adam commented that the stamp duty should be replaced with better-designed property taxes, adding that it was “a very bad tax transformed into a bad tax”.

The Trade Union Congress general secretary Frances O’Grady jumped on the analysis, warning that buried beneath the chancellor’s headline giveaways was a dire report on the state of the economy and public finances.

“The chancellor now wants us all to pay the price for his failure by cutting public services down to a stump with the loss of a million jobs.”

peter.walker@ft.com