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Austerity programme to be extended 'well into the 2020s', think tank warns

The Government's austerity programme is set to last as long as 15 years, with tax rises and cuts to services stretching "well into the 2020s", an influential economic think tank has warned.

Under current plans, the tax burden will rise to its highest level as a proportion of national income for 30 years, while spending will fall to 13% below its 2010 level by the end of the decade, after inflation is taken into account, said the Institute for Fiscal Studies (IFS).

In a gloomy assessment of the UK's economy, the IFS's annual Green Budget warned that Chancellor Philip Hammond will have to find an extra £34 billion from tax rises or spending cuts unless he ditches his target of eliminating the state deficit before 2025.

And the document warned that Theresa May's Brexit strategy of taking the UK out of the single market and imposing immigration controls is likely to leave the UK's economy 3% smaller by 2030 than if Britain had voted Remain.

If she fails to reach a free trade deal with the remaining EU, the outcome will be "worse still".

Warning that exports will be hit by new customs and regulatory barriers outside the single market, Andrew Goodwin of Oxford Economics said: "Over the longer term we think the Government's chosen path for Brexit is one of the more economically damaging.

" The only outcome that we have studied that would be worse than what the Government has chosen would be us not having a trade agreement at all and falling out on World Trade Organisation terms."

Forecasts by Oxford Economics put UK GDP growth at a "relatively disappointing" 1.6% in 2017 and 1.3% in 2018, largely due to higher inflation caused by sterling's collapse after the Brexit vote.

Workers face an "unprecedented" decade without real wage growth, as pay rises slow to 0.2% above inflation in 2017, down from 1.7% in 2016. And the four-year squeeze on benefit levels will become "more painful" as inflation rises.

IFS director Paul Johnson said that, despite the focus on Brexit, the largest impact on the public finances over the coming period would be spending cuts and tax rises inherited by Mr Hammond from his predecessor George Osborne.

"Even so the new Chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next Parliament," he said.

"Even on central forecasts that is going to require extending austerity towards the mid-2020s.

"If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin."

Mr Hammond's plans for £17 billion of tax rises over the course of this Parliament will bring the proportion of national income taken by the state above 37% for the first time since 1986/87, said the IFS.

Meanwhile, public secto r spending cuts of 4% over the next three years will take total real-terms reduction to 13% between 2010/11 and 2019/20.

Although the NHS budget in 2020/21 will be bigger than before the financial crisis of 2008, increases in health spending over the period have been the slowest since the 1950s, failing to keep pace with population growth and ageing, the IFS warned.

Meanwhile, spending on a dult social care has fallen by more than 6% since 2009/10 and "seems likely to continue falling", at a time when the elderly population has risen by nearly 16%.

And unprotected departments have faced more brutal cuts, with spending on schools, defence, public order and safety lower in 2020/21 than before the 2008 crash , as a share of national income.

Seven years into the austerity programme, the UK's total national debt remains at its highest level as a fraction of national income since 1965/66, while the annual deficit is the fourth-highest of 28 advanced economies, said the IFS.

Shadow chancellor John McDonnell said the report was "damning" evidence of "seven wasted years of Tory economic failure".

He accused Mr Hammond of "pursuing an austerity agenda that will make matters in our NHS and social care system even worse".

And Liberal Democrat Treasury spokeswoman Baroness Kramer said: "Cut after cut will be the new normal for this Conservative Government, even before the effects of Brexit hit."

A Treasury spokesman said: "The Government is committed to repairing the public finances and living within our means so that we can build an economy that works for all.

"That has required some difficult decisions on spending, but we are determined to deliver efficient public services which provide maximum value for every pound of taxpayers' money."

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