The plans suggest 1.2m job losses in the public sector by that date, 300,000 more than predicted by the Government’s official forecasters, according to the Green Budget published by the Institute for Fiscal Studies.
The respected economic think-tank said Chancellor George Osborne’s failure to hit deficit reduction targets means tax rises or “substantial” additional cuts in welfare benefits are likely after the 2015 general election to avoid “hard to contemplate” cuts in Whitehall budgets.
The fiscal position may force the Chancellor to raid pensioner benefits, the NHS, schools or overseas aid, hitherto protected from cuts, said the report.
“Over the last 30 years, tax rises announced in the year after a general election have averaged £7.5bn,” said the IFS. “Considering this trend, and in the context of the current fiscal situation, further tax rises following the next election would not be surprising.”
Mr Osborne is due to borrow £64bn more than he planned by 2015, due to the poor performance of the economy, and borrowing is likely to be higher this year than in 2012, found the IFS.
With the public finances failing to come into balance as quickly as Mr Osborne had hoped, IFS director Paul Johnson questioned whether the Chancellor can continue to shield the NHS, schools and overseas aid from cuts.
The Government has said it will continue to protect these three areas from cuts in the spending review for 2015/16, now being negotiated. But Mr Johnson said extending the protection further would mean spending on other departments – like the Home Office, Defence and Environment – falling by a third by 2017/18. If the budget for defence equipment was protected, as Prime Minister David Cameron has suggested, that figure would rise to 35 per cent.
If Whitehall departments continue to rely heavily on job losses to meet the Chancellor’s austerity demands, 1.2m public sector jobs could go by 2017/18, said the IFS.