The Institute for Fiscal Studies has said that the current economic situation is making it much harder than anticipated to pay down national debt and reduce net public sector borrowing.
And it has forecast that the current and next governments will have to slash departmental spending to have any chance of balancing the country’s books in the next five years.
The IFS Green Budget report predicted that Whitehall budgets could fall by a third, compared to 2010 levels, while the number of people employed in the public sector may have fallen by as much as 1.2m.
It has also claimed that the Chancellor’s reluctance to cut spending and raise taxation now will necessitate further borrowing. It expects borrowing to be £64bn higher in 2014/15 than George Osborne had hoped.
One of the biggest pressures on public spending is likely to be the spiralling welfare budget, with the social security bill expected to soar from 28.5 per cent of total public spending in 2010 to 32.5 by 2017/18.
However, IFS director Paul Johnson explained that the dire predictions rely on the government maintaining its current policies against a backdrop of unchanged economic performance.
He said: “As economic performance and forecasts have worsened the Chancellor has followed a dual strategy. He is allowing borrowing to increase substantially in this parliament whilst promising another dramatic dose of public spending cuts in the next parliament.
“The effects of concentrating all those cuts on currently unprotected areas of public service spending look hard to contemplate. A more likely scenario perhaps is that other choices will be made after the next election.”
Johnson said that welfare spending would be an attractive target for cuts, but warned against rushing to implement further reforms in this area while Universal Credit is still being rolled out.
He added: “Social security spending is growing as a proportion of total spending and it can create unwelcome incentives. But cutting it will inevitably often hit the vulnerable. And while Universal Credit represents a welcome simplification, too many ill thought-out reforms already risk introducing new and unwelcome complexities”.