Institute for Fiscal Studies forecasts 16% cuts across Whitehall
Britain will face spending cuts of more than 16% to key public services, such as law and order and higher education, if Labour and the Tories deliver on their goals to protect schools, hospitals and defence, the Institute for Fiscal Studies has warned.
As the two main parties gear up for a bitter general election battle that will be dominated by this issue, the IFS says Britain is facing a decade of pain that will see the tightest constraint in public service spending since 1977.
Concern has grown already this week about immediate shortfalls in the culture and education budgets, but the Guardian is publishing research by the IFS at the start of a two-day series on the future of public spending which reveals that spending on a majority of public services will have to be cut by up to 16.3% over the next three-year spending period – 2011-14 – if the next government is to deliver real-term rises for health, schools, defence and overseas aid.
Labour and the Tories have both said they would like to protect these four areas. They have also agreed, at a minimum, to cut Britain’s record fiscal deficit from 11.9% of GDP next year to 1.3% by 2018.
Carl Emmerson, the IFS’s deputy director, said: “It could be eight years of pain … Unfortunately that is the kind of choices we are looking at. It will be very difficult for public services. Under the Labour spending plans at the moment it is the tightest three-year period since 1977 when the IMF were involved in setting spending plans in the UK.”
Gordon Brown and David Cameron are warned by Four former chancellors – Denis Healey, Geoffrey Howe, Nigel Lawson and Norman Lamont – say Britain is facing the most far-reaching public spending cuts since the 1970s. Speaking to the Guardian, Lord Lawson, who is advising the Tories, indicates that Cameron will follow the example of Margaret Thatcher, who held an emergency budget within 40 days of her election victory in 1979 to stabilise sterling.
Lord Healey, Labour chancellor from 1974-79, says: “It is always painful to many people depending on what area you cut. It will be very painful for those who get the money at the moment.”
Sir Michael Bichard, former permanent secretary at the education department, who is advising both the Treasury and the Tories, tells the Guardian that the political debate on public spending is still “pretty undeveloped”. He also calls for a “jolt to the machine” to shake up Whitehall.
“We all are currently guilty of engaging in a debate about tactical issues when there are some huge strategic issues,” he said. “I think the debate about public spending is pretty undeveloped. But you’ve also got an election in less than a year and there aren’t many politicians who want to be seen with an axe in their hand in the year before an election.”
He and other recently retired mandarins have urged the two main party leaders to consider a complete overhaul of Whitehall to avoid costly duplication in the distribution of public spending.
Public spending has already become the key election battleground. The row erupted when Gordon Brown claimed the Tories would threaten vital public services after Andrew Lansley, the shadow health secretary, said public spending would have to be cut by 10% if NHS spending were to rise in line with inflation, as the Tories have promised, and social security and debt interest payments were maintained.
The government softened its position last week, with Lord Mandelson saying that Britain faces years of spending restraint, after it became clear that Lansley made his comments on the basis of government and IFS figures. The IFS is to go a step further and explain how the 10% cuts will be increased to 16.3% if similar spending safeguards are offered to schools, defence and overseas aid.