Chancellor George Osborne may have difficulty in making his Budget sums add up, a leading economic think-tank has warned.
The Institute for Fiscal Studies (IFS) said he was relying on “uncertain” revenues from a crackdown on tax avoidance and an increase in the bank levy to fund a series of giveaways in his Autumn Statement.
Mr Osborne told MPs on Thursday that the measures he had set out were “fiscally neutral” – leaving the overall level of projected Government spending unchanged.
However, IFS director Paul Johnson said the Chancellor’s cuts in fuel duty, employers’ National Insurance contributions and business rates, and his introduction of a tax break for married couples would cost the Exchequer around £2.5bn a year.
The increase in the bank levy is only expected to raise around £500,000, while the new anti-avoidance measures are slated to bring in an “inevitably uncertain” £1bn - leaving a £1bn shortfall.
At the same time, the Treasury is assuming that the £750m a year cost of the Liberal Democrats’ free school meals for five to seven-year olds will be swallowed up into the “overall spending envelope” from 2016-17 – which would mean even deeper cuts in other spending.
“The Chancellor continues to make specific promises on spending increases whilst stating that he will keep total spending at the same level. He can’t keep doing that,” Mr Johnson said.
“Whilst the costs of his tax cuts are pretty definite, the benefits from his anti-avoidance measures, and indeed of the increase in the bank levy, are rather less certain.”
The IFS warned that Mr Osborne’s plans to return the budget to surplus by 2018-19 implied further hefty cuts to public services over the next five years.
The IFS also questioned the method used by Labour to calculate Shadow Chancellor Ed Balls’s claim that the average working person is now £1,600 a year worse off compared with 2010.
Mr Johnson said Labour had not taken account of tax and benefit changes while the measure of inflation the party used in its calculations had lost its Office for National Statistics classification.
But he said Labour’s figures were “pretty consistent” with the evidence from survey data on incomes.