THE spending cuts announced by the new coalition government yesterday amount to just one tenth of the fiscal tightening that will be needed to repair Britain’s parlous public finances, according to the Institute for Fiscal Studies (IFS).
The bleak assessment came as chancellor George Osborne detailed £6.2bn of spending cuts that he said would make Britain “a leading voice in Europe for fiscal responsibility”.
Liberal Democrat chief secretary to the Treasury David Laws, who has been tasked with wielding the axe, said he hoped to send “shockwaves” through Whitehall after using the last week to root out wasteful public spending.
Laws said £1.5bn could be saved by cutting the cost of consultancy and travel. Ministers will lose their chauffeur-driven cars, senior civil servants will have to travel in standard class, IT projects will be scrapped and state contributions to Child Trust Funds will be axed.
Vince Cable’s business department is bearing the brunt of departmental spending cuts, with a headline reduction of £836m, although a small amount of that will be reinvested in further education and apprenticeships.
Civil service recruitment will be frozen, potentially reducing the public sector payroll by 50,000.
Although the government said it would be “draconian” in bearing down on public spending, economists were quick to point out that the cuts were just a fraction of what is needed to put the UK’s public finances back on track.
Robert Chote, director of the IFS, said the cuts would shave just £5bn off Britain’s £156bn budget deficit, because £500m was being used to fund other spending commitments or tax cuts. And the £704m reduction in grants to Northern Ireland, Wales and Scotland does not have to be found until next year.
“This is less than a tenth of the fiscal repair job that Alistair Darling’s March 2010 Budget forecast suggested will be needed over the next few years,” Chote added.
And The Ernst & Young Item club, which uses the same forecasting model as the Treasury, warned that the true scale of fiscal tightening would only become apparent when the new Office for Budget Responsibility produces independent growth and borrowing forecasts.
“This will make the scale of tightening even greater,” said Hetal Mehta, senior economic adviser to the Item club.
Meanwhile, Osborne told Treasury officials to publish every item of significant government spending, throwing open the nation’s books for the first time in history. The chancellor is hoping that he will be able to secure public backing for swingeing cuts by demonstrating just how much taxpayers’ money the state spends.