POLITICS

George Osborne Could Be Forced To Impose £6bn Tax Rise, Says IFS

27/06/2013 15:57 BST | Updated 27/06/2013 16:29 BST
AP

George Osborne could be forced to raise an extra £6bn in taxes after the 2015 general election despite his latest round of spending cuts, the Institute for Fiscal Studies (IFS) has said.

The chancellor has said he would like to see the deficit cut through a 80:20 split between spending cuts and tax rises - however the current ratio is closer to 85:15.

On Thursday Osborne announced a further £11.5bn in cuts to Whitehall departments for 2015/16 and savings of a similar magnitude have already been pencilled in for the following two years.

But Paul Johnson, the director of the IFS, said there needed to be a "serious debate" about whether the fiscal consolidation desired by the government could be achieved through spending cuts. He also questioned whether it was reasonable to protect the NHS, schools and development from cuts.

"At almost any other moment in the past 60 years, announcements of spending cuts of this scale would have created a storm," he said.

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"Returning to an 80/20 split for the consolidation as a whole would mean a £6bn tax increase in the next Parliament."

He added: "We need to start the discussion now about the scale and composition of those cuts to come, whether protected spending areas will continue to be protected and whether we will really avoid further tax increases."

Osborne said today that his "instinct" was to take the axe to welfare rather than raise taxes. "Just putting more and more taxes on people is not really the right answer," he said. However he conceded it would be "very silly" to rule out increasing taxes following the general election.

Around 300,000 public sector jobs have been lost since the coalition came to power in 2010, a similar number are due to be lost in the next two years, and 144,000 are expected to be lost in 2015-16. By 2017-18 this could mean one million public sector jobs could be lost.

The chancellor has said that new jobs in the private sector have more than made up for the cuts to public sector jobs.

However while the IFS accepted this was true, Johnson said there was "no clear correlation" between the downsizing of the public sector and the uptick in private sector employment.

"It turns out that some regions like London where public job losses have been relatively limited are the regions with the biggest increases in private sector employment," he said.