The Institute for Fiscal Studies, which has no political alignment, has said that the government would have to find another £13bn during the next parliament, in order to put the public finances back on an even keel.
In his pre-Budget report, the Chancellor, Alistair Darling, outlined measures for a £57bn fiscal tightening which is about 4.1% of national income, but the IFS has called for a £70bn tightening, which amounts to nearer 5% of national income. They believe it would be more sensible to try to achieve this higher amount in order to reassure investors.
The IFS in a “Green Budget’ report prepared jointly with Barclays Capital and Barclays Wealth said the squeeze on public spending would be the most severe since the four years following 1976, when the International Monetary Fund stepped in to call for severe cuts in UK government spending.
The Institute for Fiscal Studies is suggesting that we should be tightening our belts even more than government has suggested.
However, the report did say that there should be no drastic tightening of the fiscal position during 2010 as the Treasury should avoid “putting the recovery at undue risk with significant extra tax increases or spending cuts in the coming year.”
This line seems to validate the position of the Labour Government as the Conservatives were initially taking a tougher line, although they have seemed to backtrack somewhat in recent days. Robert Chote , IFS director, was quoted as saying: “Tightening is more a marathon than a sprint. It is more important to show that you can last the course rather than be leading off the first bend.”
Tags: fiscal policy, government expenditure, national income, Public Finances
