Extra £15bn needed to reach deficit target, think-tank warns
Tax rises and spending cuts totalling £15 billion on top of those already planned by ministers will be needed if the Government is to eliminate the UK's deficit by 2022, a new report by the Institute for Fiscal Studies (IFS) has warned.
Chancellor Philip Hammond last year tore up his predecessor George Osborne's pledge to balance the books by 2020, stating instead that he would get the public finances into balance "as early as possible in the next Parliament".
At the time the pledge was made, the next Parliament was expected to end in 2025, but the snap election has brought that date forward to 2022.
The IFS found that the coalition Government increased taxes by £10 billion a year overall as a result of decisions taken between 2010-15.
And measures announced by the Conservative Government since 2015 will impose an additional £15 billion tax burden, pushing Government revenues towards their highest level since 1986/87, as a share of the national economy.
Meanwhile, seven years of austerity has meant "significant" cuts to areas such as working-age benefits and law and order as a proportion of GDP.
Despite this, overall public spending remains higher than before the 2008 financial crash, as a result of "persistently poor" economic growth and increases in the share of national income going to favoured areas like health, pensioners and overseas aid.
The report - entitled Two Parliaments Of Pain - warned that the era of austerity is not over, with more tax rises and spending cuts to come if the books are to be balanced.
"Eliminating the deficit before a May 2022 general election would require a combination of further net tax rises and spending cuts worth £15 billion on top of what is already planned," the think-tank said.
Despite Conservative manifesto pledges to cut public spending by 1% in real terms in 2016/17 and 2017/18 - the equivalent of £15 billion over the two-year period - the report found that state expenditure is instead due to rise by 1.3% a year, a total of £21 billion.
IFS deputy director Carl Emmerson said: "The deficit is now roughly back to the level it was prior to the financial crisis, although it is still above its long-run average.
"On the tax side the impact on the public finances of substantial tax cuts has been more than outweighed by tax raising measures.
"The net tax rise in the current year from measures announced in the last Parliament is an estimated £10 billion, with an eventual £15 billion a year from measures announced in the current Parliament.
"These are helping push government revenues towards their largest share of the economy since 1986-87."
Shadow chancellor John McDonnell said the IFS analysis " reveals the failure of seven years of Tory Government".
"Despite promising to balance the books by 2015, the IFS says the UK's public finances 'compare unfavourably to other advanced economies' with the fifth largest deficit and the sixth largest debt pile," said Mr McDonnell.
"Only Labour has a proper plan for the public finances underpinned by our Fiscal Credibility Rule, which will allow us to grow the economy and deliver for the many, not the few."
Liberal Democrat Treasury spokeswoman Baroness Kramer said the report showed deep cuts in key areas of government activity.
"Theresa May doesn't care about things that compassionate Conservatives used to care about, like the environment and social justice. She is obsessed with a hard Brexit and doesn't care about the impact that choice has on public services like the NHS.
"Instead of tackling the causes of this poor growth, the Conservatives instead are choosing to commit one of the greatest acts of economic self-harm this country will ever see: leaving the single market."
Mr Hammond said: " As the IFS acknowledge, we have made good progress in cutting Labour's deficit by two thirds so we get back to living within our means and securing our economy for the future.
"Jeremy Corbyn's nonsensical ideas would put our economy at grave risk with £500 billion more debt and borrowing. He could get into government propped up by the Lib Dems and SNP in a coalition of chaos, and we'd all pay the price with higher taxes and fewer jobs."
SNP MP Stewart Hosie said: "This is proof that the Tory austerity agenda has failed, damaging economic growth and causing pain for the vulnerable and those on low incomes.
"If there was ever a wake-up call not to cut too far and too fast to meet arbitrary targets, this is it - however, this may be the tip of the iceberg in the event of a hard Tory Brexit.
"The SNP is the only alternative to the Tories. This report shows the choice for Scotland is clear: SNP MPs that will oppose Tory cuts and stand up for Scotland, or five more years of damaging Tory austerity."