The next British government will have to deliver a drastic £100 billion programme of tax hikes and spending cuts to repair the ailing public finances, an economic think-tank warned today.
The Centre for Business and Economic Research (CEBR) said the cuts would be needed to get the UK’s budget deficit down to £50 billion by 2014 to 2015.
The warning comes a day after the head of the Civil Service, Cabinet Secretary Sir Gus O’Donnell, said officials were drawing up options for ministers to achieve savings and rebuild public finances.
The CEBR says that if the Conservatives win the next election - as bookmakers predict - the gap will be plugged with £20 billion in tax rises and £80 billion spending cuts.
If Labour retains power, it forecasts £40 billion of tax hikes and a lower level of spending cuts - £60 billion.
CEBR chief executive Douglas McWilliams said: “It is likely that any government - particularly a new one - will be forced by political necessity to announce its fiscal consolidation programme early while it is still possible to blame the need for it on the previous government.
“And it will look to achieve most of its results within a parliament.” The think-tank’s forecasts are based on a more pessimistic view of the UK’s economic prospects than the Treasury.
CEBR believes that the economy will contract by 4.1 per cent this year - compared with the official 3.5 per cent estimate - before growing by just 0.6 per cent next year and 0.9 per cent in 2011.
Mr McWilliams said the recovery would be “sluggish”, meaning lower tax revenues and bigger payouts on spending such as unemployment benefits.
Chancellor Alistair Darling said in April’s Budget that he expects the economy to recover much more quickly from recession - growing by 1.25 per cent in 2010 and accelerating to 3.5 per cent in 2011.
PA