'Five more years of austerity'

Under the plans set out by Mr Osborne in December's Autumn statement, Whitehall departments face real-terms cuts of 14.1% (£51.4 billion) - after taking inflation into account - in the next parliament, on top of 9.5% (£38.2 billion) over the past five years, while the Chancellor's aim of slicing £12 billion from the welfare budget "will not be easy", said the Institute for Fiscal Studies (IFS0 in its annual Green Budget.

If health, schools and overseas aid are protected in the same way they have been under the coalition, unprotected departments will face cuts totalling 42% over the decade.

The fiscal targets set by the three main parties allow each of them leeway for a less painful consolidation than envisaged in the Autumn Statement, said the IFS, with Conservatives able to hit theirs by cutting 6.7% (£24.9 billion) from departmental spending, Liberal Democrats 2.1% (£7.9 billion) and Labour 1.4% (£5.2 billion) - but at the cost of more debt.

Although none of the major parties is talking about significant tax rises after the May 7 poll, the IFS warned that the first year after each of the last five elections has seen hikes totalling £5 billion at today's prices, whichever party has won - the equivalent of hiking the main rates of income tax by one percentage point, increasing all employee and self-employed National Insurance rates by one percentage point or raising the main rate of VAT by one percentage point.

However, there was better news from Oxford Economic, which collaborated with the IFS on the Green Budget and forecast that the slump in oil prices will propel UK growth to a healthy 3% in 2015 - largely driven by consumer spending and business investment - with the economy continuing to grow at "a solid pace" over the longer term.

If their prediction is correct, the IFS calculates that less austerity will eventually be needed than currently planned.

The IFS found that the scale of cuts envisaged by the Autumn Statement results in part from the Government's failure to deliver planned savings in public spending and social security over the past five years.

Plans originally set out by the Chancellor in 2010 implied real-terms cuts of 10.6% to departmental spending by the end of this financial year, but even by the end of next year, total Whitehall savings are not expected to have passed 9.5%.

Meanwhile, cuts in the generosity of working-age benefits have been entirely offset by higher payments to a greater number of pensioners and increasing need caused by low pay and soaring rents, leaving the overall social security budget unchanged.

The Conservatives' planned two-year freeze on non-disability working-age benefits will deliver only £2.5 billion of their planned £12 billion welfare cuts - less than the £3.2 billion estimated by the Treasury - said the IFS.

Even a freeze on all benefits and tax credits other than pensions would only just pass the Tory target, saving £13 billion over five years - the equivalent of taking £800 from 16 million families.

While Labour's target of balancing the current budget could be achieved with "substantially smaller spending cuts", it would slow the pace of repayment of Britain's national debt, said the IFS.

If Labour stuck to its target through the 2020s, debt would fall by 9% of GDP, compared to 19% under Conservative plans to balance the books overall.

IFS analysis of forecasts from the International Monetary Fund (IMF) found that while some countries have implemented much bigger austerity packages than the UK since 2008, the "fiscal consolidation" currently planned by the UK for the period 2015-19 is the largest out of 32 advanced economies around the world.

IFS director Paul Johnson, an editor of the Green Budget, said: "Mr Osborne has perhaps not been quite such an austere Chancellor as either his own rhetoric or that of his critics might suggest.

"He deliberately allowed the forecast deficit to rise as growth undershot in the early years of the Parliament.

"He has not cut spending in real terms as much as planned, as inflation has undershot. And he has cut departmental investment spending by only half as much as he originally planned.

"One result is that he or his successor will still have a lot of fiscal work to do over the course of the next Parliament.

"The public finances have a long way to go before they finally recover from the effects of the financial crisis."

The IFS's Carl Emmerson said current plans imply that public spending is set to hit is lowest level since at least 1948, as a share of GDP.

"We have already seen the longest and deepest period of cuts to public spending since the Second World War," he said.

And he warned that further cuts would be harder to deliver, as the Coalition has "done the easiest cuts first" and finding the same kind of savings from squeezing public sector wages as seen over the last five years "won't be easy".

Current projections would see Britain's state debt peak at about 80% of national income - the highest since 1967 - said Mr Emmerson.

But he noted that debt on this scale was not unprecedented, and that it had been higher from 1830-70 and 1916-67.

Historically low interest rates also mean the Government is paying less to service the debt than it did when the sums owed were far smaller as a share of national income, he pointed out.

Asked whether the IFS was predicting tax rises following the election, Mr Johnson said: "Are we saying that tax rises are inevitable? No. Are we saying that tax rises have tended to happen after elections and there is a big gap to fill? Yes.

"I don't know whether the next government will do but I wouldn't fall off my stool if there were some tax rises there."

On Conservative plans to slice a further £12 billion from social security, Mr Johnson said: "Are the welfare cuts that have been suggested impossible? No. Will they be difficult? Yes.

"The Conservatives say they want to make £12 billion of spending cuts on social security.

"That will require some really tough decisions about things like whether more child benefit should be means-tested or whether we pay a lot less than the full rent to people on housing benefit or start to reduce pension levels or spend an entire parliament freezing benefit levels.

"All of those things are possible but clearly very difficult."

Shadow chancellor Ed Balls said: "This report shows that, if the Tories win the election, Britain will face the biggest spending cuts of any major advanced economy.

"Instead of this extreme approach, which will put our vital public services at risk, we need a balanced and fair way to get the deficit down while securing the future of our NHS.

"Labour will make sensible spending cuts in non-protected areas, but we will also reverse David Cameron's £3 billion tax cut for the top 1% of earners. And, most of all, Labour's economic plan will ensure we earn our way to rising living standards for all, not just a few. That's how we will cut the deficit every year as we balance the books and get the national debt falling as soon as possible in the next parliament.

"George Osborne's failure to boost productivity and wages is the reason why his plan has not only failed working people but failed on the deficit too."

Conservative Treasury Minister Andrea Leadsom told BBC Radio 4's World At One: "What we are seeking to do is sort out our economy via reductions in spending. Those reductions to real departmental spending would take us back to levels last seen in 2002/03, when Gordon Brown was in office and Ed Miliband was in government as well - and those were not times of great austerity.

"We are looking to reduce the amount that we spend of GDP, but that's vital in order for our economy to be sustainable for the sake of the future of all our children."

TUC general secretary Frances O'Grady said: "The IFS analysis shows that if the Conservatives are elected their spending cuts would be deeper than any other party and the biggest austerity package in the world for an advanced economy.

"Not only would this destroy many public services, it would take so much cash out of the economy that it would run a real risk of choking off the recovery.

"This would be economic self-harm designed to shrink the state back to the 1930s when we had neither the NHS nor a decent welfare safety net."

Unison general secretary Dave Prentis said: "Recent growth does not mask the fact that we have already seen the longest and deepest period of cuts since the second world war. Austerity has been self-defeating with low pay and higher rents driving up social security payments.

"Public service workers have seen their living standards continually eroded through freezes and caps. These workers deserve to be brought in to the warm with recognition and fair pay for the vital services they are responsible for.