Public spending tight for the next five years

3 February 2011

The next five years are going to be the tightest years ever for public spending since the Second World War, according to the independent think tank the Institute for Fiscal Studies (IFS).

As outlined in its Green Budget, the group warns that the planned spending cuts might prove "formidably hard to deliver" and "achieving these more ambitious spending cuts will be more difficult" – especially within the Home Office and the Ministry of Justice.

The think tank also cautions that "the economy might not grow as quickly as the Office for Budget Responsibility (OBR) expects, and even if it does, the public finances might not bounce back as strongly as it forecasts".

It predicts that government borrowing will be nearly £3 billion less than the £148.5 billion that the OBR forecasts, highlighting the importance that "Chancellor George Osborne resist the temptation to engage in any significant net giveaway in the Budget". However, this figure is in the context of a £145.6 billion deficit.

Instead, the Green Budget advises that any extra money should be 'banked' to give more leeway if further issues arose.

Michael Dicks of Barclays Wealth and Simon Hayes of Barclays Capital, who produced the Green Budget in collaboration with the IFS, expect the economy to grow at a similar rate to the figure of 2.1% forecast by the OBR this year.

However, over the medium term, they expect the economic growth to slow down. Recent figures from the Office for National Statistics show that the economy shrank by 0.5% in the last quarter of 2010.

In the worst-case scenario, the IFS predicts that public sector debt would still be rising in 2015-16.

This article was written for Money Observer

Add new comment