BRITISH government spending may have to fall by a quarter over the next five years if the target to cut the country’s borrowings in half are to be met, the chancellor of the exchequer Alistair Darling has been told.
The warning came from the highly respected Institute of Fiscal Studies, which expressed doubts that the £11 billion of savings promised by Mr Darling from so-called “efficiencies” can be achieved.
Mr Darling, faced with a budget in six weeks’ time, has already said that a full review of spending will take place within months, if Labour is re-elected, while the Conservatives have promised a budget within 50 days.
Labour is promising that the budgets for the NHS, schools and international aid will be safeguarded for the next two years, but this means that the cuts elsewhere will have to be draconian.
The spending cuts that the next Labour government would make if re-elected would be tougher than were made by the Tories under Margaret Thatcher in the early 1980s, Mr Darling said last night.
“They will be deeper and tougher – where we make the precise comparison I think is secondary to an acknowledgement that these reductions will be tough.”
The Institute for Fiscal Studies said that Whitehall departments would have to find savings of £25 billion over the next two years, rising to £46 billion by 2014-15, to make Mr Darling’s budget calculations add up.
The decision to protect front-line spending for schools, the NHS and the overseas aid budget for the next two years will mean the axe will fall disproportionately on other departments.
The unprotected departments, such as transport and housing, will have to endure cuts of 14 per cent over the next two years, but their budgets would have to fall even further – by 25 per cent – if health, schools and overseas are to be protected after that.
By the Treasury’s calculations, £39 billion will have to be taken from existing budgets to meet Mr Darling’s deficit target – but this means £30 billion of cuts have yet to be identified to voters.
The existing lack of detail is illustrated by the department of children, schools and families, which has committed to making £1.1 billion of cuts, saying that some of the money would come from “collaborative procurement” and “reduced energy consumption”.
Mr Darling’s belief that some of the problems will be dealt with by rising growth were given a slight boost by the latest retail sale figures, which showed that sales rose in February by 1.6 per cent.
Electrical goods, furniture and lighting – which had fallen by 13.2 per cent in January following the return to a 17 per cent VAT rate – were 11.2 per cent up last month, according to the Office of National Statistic – though analysts warned that consumers are likely to remain cautious until next year.
The Conservative Party rounded on Mr Darling’s budget: “I am going to try and get rid of this enormous debt by getting rid of wasteful government spending, not taxing hard-working people,” said shadow chancellor George Osborne, who said the Tories would cut spending more than raise taxes.
Tory hopes of winning the election were dealt another blow by an opinion poll in 56 key Labour-held marginal constituencies that they must win if they are to have a majority, which showed Labour still enjoys a four-point lead.