'Big and painful' cuts needed to fix budget, says IFS

Image source, PA Media

According to the Institute for Fiscal Studies, the country's finances will need to be put on a sustainable path by the chancellor.

There will be a shortfall in revenue due to a weaker economy and tax cuts.

The government would have to cut spending by £60 billion a year by the end of the century.

The Treasury said it would deliver sustainable funding for public services.

The scale of the cuts needed to make the sums add up is outlined in a new report.

It makes sense that Chancellor Kwarteng could.

• increase working-age benefits in line with average earnings rather than inflation for two years to save £13bn
• limit public investment to 2% of national income, to save £14bn
• cut the budgets of every government department except health and defence by 15%, to save around £35bn

Efforts to promote growth will help plug the shortfall between income and outgoings, according to Mr. Kwarteng and the Prime Minister.

A full forecast from the Office for Budget Responsibility and further details of the chancellor's economic strategy will be set out on 31 October.

The markets didn't like the strategy announced in the mini-budget.

Large tax cuts and a huge package of support with energy costs without details of how they would be paid for was outlined.

After the consultation green papers issued in Parliament, the Institute for Fiscal Studies published its own assessment of the chancellor's strategy.

If the chancellor wanted to stick to his promise to balance the budget in the medium term, he would have to cut spending on benefits, public services, and investment sharply.

The chancellor wants the public finances to be sustainable. In order to achieve that, tens of billions of pounds of spending cuts will have to be made.

It's difficult to see how the chancellor can get out of this mess.

The country isn't going into a period with a lot of fat to trim.

"One of the problems the government faces is we have had a decade and more of really tight spending settlements, we are still spending less on a lot of public services than we were just over a decade ago," he said.

He said it would be hard to cut public sector pay, benefits, education, justice and prisons.

The rule regarding debt falling relative to the size of the economy was put in place before Liz Truss's government.

Allowing five years before debt must fall is the basis for the calculations.

The government's focus on faster growth, which it said would definitely help, was welcomed by it.

Growth of 2.5% a year would boost tax revenues and reduce the need for spending cuts according to the chancellor.

In order to make sure that politically motivated wishful thinking is not included into economic and fiscal forecasts, an independent assessment from the OBR is vital.

The forecasts from the bank suggest that the economy will shrink in the next two years as rising interest rates and rising prices slow the economy down.

Growth will average 0.8% over the next five years, according to Citigroup.

Paul Johnson said he would be very surprised if the OBR didn't suggest that large spending cuts or tax rises would be needed to balance the books.

The Growth Plan will drive sustainable long-term growth, which will lead to higher wages, greater opportunities and sustainable funding for public services, according to a Treasury spokesman.

They said that the government is committed to fiscal responsibility and getting debt down as a share of GDP.