POLITICS

Autumn Statement 2014: Osborne Has 'Colossal Cuts' To Make, Warns IFS

04/12/2014 13:23 GMT | Updated 05/12/2014 11:59 GMT

George Osborne needs to make "spending cuts on a colossal scale" to meet his spending plans after the next election, the Institute for Fiscal Studies (IFS) has warned.

The economic think-tank said that Osborne would need to make around £21 billion a year in welfare cuts or tax rises by 2019/2020, alongside his pledged £7 billion in income tax cuts, to keep cutting at the same pace as he has over the last four years, and that his austerity agenda would see "the role and shape of the state changed beyond recognition."

Paul Johnson, head of the economic think-tank, told the Huffington Post UK: "There is no getting away from the fact that what is to come is really big cuts going forward."

Asked by the Huffington Post UK if Osborne was right to accuse the BBC of "hyperbolic" coverage of his planned cuts, Johnson said the Chancellor's planned cuts were "genuinely significant changes", adding: "I don't think they are unachievable."

However, he pointed out that Osborne's plan to slash £12 billion from the welfare budget "couldn't really even go half way to achieving levels of departmental spending going down even at the same rate as they are in this parliament."

Johnson conceded that the government's Office for Budget Responsibility had published "more exciting numbers" about the public finances than his think-tank, and that Osborne was "right to say that the level of cuts he has achieved over this parliament have appeared relatively achievable, perhaps relatively more achievable than some thought four or five years ago."

Despite ministers' indications that the bulk of the austerity agenda is over, the economic thinktank said that just £35 billion of the cuts in spending by Whitehall departments have already happened, with £55 billion yet to come.

In his opening statement, Johnson said: "We think that on the plans set out yesterday by 2019-20 a third of all state spending will go just on health and state pensions, up from a quarter not long before the crisis. And that’s without any additional spending being allocated to the NHS."

The think-tank's sobering verdict on Thursday will jar with Osborne's insistence that the BBC was "hyperbolic" in its coverage of his Autumn Statement, in an attack backed up by the prime minister.

The prime minister's official spokesman said such "hyperbolic descriptions" did not "help the type of debate we need" about the economy.

In a tetchy interview with John Humphrys on the BBC Radio 4 Today programme, Osborne complained that the corporation's coverage was like "listening to a rewind of 2010".

"You had BBC correspondents saying Britain is returning to a George Orwell world of the Road To Wigan Pier. It is just such nonsense. I thought the BBC would have learnt over the past four years that its totally hyperbolic coverage of spending cuts has not been matched by what has actually happened," he said.

He added: "What I reject is the totally hyperbolic BBC coverage of spending reductions. I had all that when you were interviewing me four years ago and has the world fallen in? No, it hasn't."

Complaining of "unfair" treatment, Osborne said that, although growth was expected to be 3% this year, tax revenues were still struggling, partly due to the "massive" 2008 credit crunch.

The government appears irritated at the BBC's assistant political editor's Norman Smith's description of the Office for Budget Responsibility (OBR) report into what the next government may have to cut as a "book of doom". The BBC has defended itself, insisting it had been "fair and balanced" in its reporting

The OBR, set up by the Chancellor, estimated that Osborne's planned cuts would see public spending fall to its "lowest level in 80 years" by 2019-2020, "taking it below the previous post-war lows reached in 1957-58 and 1999-00".

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The budgetary watchdog said it expected at least five more years of austerity, and that less than half of the cuts had already been implemented.

Departments like the police and the judiciary and "other" spending could see funding cut by as much as 40% by 2018-2019, according to the OBR's analysis.

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In its report on the Autumn Statement, the OBR warned that Osborne would face a "significant challenge" implementing his cuts programme, one that would be "all the greater if existing protections were maintained".

The budgetary watchdog admitted that it was "quite possible" that a different government after 2015 "would adopt different policies".

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Lib Dem business secretary Vince Cable has rebelled against Osborne's austerity agenda by ordering his civil servants not to discuss any planned cuts after 2015 with Treasury officials.

He has also asked the Office for Budget Responsibility to spell out the difference between Tory and Liberal Democrat economic plans.

"I am concerned that the distinction between these two periods is insufficiently clear," he wrote to OBR head Robert Chote. "The distinction is important because spending assumptions are very different to spending decisions: the former are indicative "placeholders" and are contingent on future government decisions about public spending, while the latter are definitive and highly unlikely to change.

"My observation of the broader public commentary on fiscal policy suggests that this important distinctions is not well understood."

Cable was swiftly slapped down by his Lib Dem colleague Danny Alexander, the Chief Secretary to the Treasury, who told BBC Radio 4's PM that "it's not the job of the OBR to set out political differences between parties".

Other experts have poured scorn on Osborne's prospective cuts. Tony Dolphin, senior economist at the Institute for Public Policy and Research, warned that Osborne's planned cuts were "implausible".

Blogging on the Huffington Post UK, he wrote: "Given the scale of cuts in the public sector, [the OBR] can only make its growth forecast add up by assuming that consumer demand is boosted by households taking on more debt - and at an unprecedented pace.

"Extraordinarily, the OBR thinks that by 2019 the household sector will have a financial deficit twice as big as in 2007 and 2008 when the financial crisis hit. As result, the household debt-to-income ratio is forecast to rise beyond its pre-crisis peak to over 180 per cent.

"This is pretty implausible. If the next government tries to follow the deficit reduction path set out in the Autumn Statement, it can only succeed in the short-term because the household sector takes on debt at a faster pace than it did before the financial crisis. But that risks a house price bubble and bust, followed by a recession and ultimately a new blow-out in the government deficit."