Business

Austerity 'may last until 2020'

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Media captionHugh Pym discusses how long austerity might last with Alan Clark of Scotiabank and Carl Emmerson from the Institute of Fiscal Studies

Two influential think tanks have warned that austerity measures in the UK could still be in place when the 2020 election takes place.

"We are still as far away from the (budget deficit) target as we were in 2010," the Institute for Fiscal Studies and the Institute for Government said.

"Indeed, it would not be surprising if not just 2015 but also 2020 was an 'austerity' election."

The warnings came in a briefing ahead of the Spending Review on 26 June.

Chancellor George Osborne's review will cover spending after the next election.

Mr Osborne originally predicted in 2010 that he could balance the budget within four years, but that is now not expected to happen until 2017-18.

Higher taxes

While the government has stuck to most of its plans from 2010, there has been less growth than expected, which has reduced the amount of money the government has taken in taxes.

The think tanks warned that whoever is chancellor after the next election will probably have to raise taxes straight away.

The warning of extended austerity was based on the experience in Canada in the 1980s and 1990s, when the government needed to bring the budget deficit under control.

"If the UK experience proves to be as drawn out as the Canadian one, we should expect not just 2015 but also 2020 to be an austerity election," the briefing said.

A budget deficit exists when a government is spending more than it is raising.

Agreed cuts

Mr Osborne has already said how much government spending needs to be cut in 2015-16.

The overall cut in the parts of spending that departments can influence will have to fall by 2.8%.

But as a result of spending on health, education and international aid being protected, unprotected departments' spending will have to fall by 8% in the year.

Those cuts for unprotected departments could be even more severe if the government decides to cut defence or home office spending by less than average.

The chancellor announced at the end of May that he had already reached agreement with eight government departments to make cuts of between 8% and 10% in 2015-16.

The departments that have agreed the cuts are: the Ministry of Justice, the Department for Communities and Local Government, the Department for Energy and Climate Change, HM Treasury, the Cabinet Office, the Foreign and Commonwealth Office, and the Northern Ireland Office.

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