£9bn black hole: Painful tax rises likely to hit households after next election as George Osborne is accused of fudging deficit figures

Chancellor under fire as Labour attacks £2.2bn 'raid' on NHS to honour borrowing pledge

Households and businesses should brace for painful tax rises after the next election to fill a £9bn hole in public finances, a leading economic think-tank warned today.

The Institute for Fiscal Studies (IFS) was also scathing about what it described as the last-minute manipulation of departmental budgets ahead of the Budget in order to save George Osborne the embarrassment of having to report that Britain’s annual deficit was rising, rather than falling.

It said its analysis revealed that without new tax rises government spending would have to be cut by 18 per cent by 2018, suggesting that after an election it was much more likely that a future government would attempt to find those savings through new taxes rather than through further swingeing spending cuts.

The Chancellor surprised economists when he announced that public borrowing for 2012-13 would come in £100m below the £121bn deficit recorded in 2011-12.

Most analysts had expected the Office for Budget Responsibility to project a deficit some £5bn to £10bn higher than the previous year, given that the public finances had shown a year-on-year deterioration between last April and January. But an examination of the OBR’s document revealed that the Chancellor had achieved this unlikely feat by ordering departments to underspend their budgets in the final two months of the year.

The IFS highlighted the contrast between Mr Osborne’s behaviour and his words shortly after taking office in June 2010, when he pledged: “From now on we will have to fix the budget to fit the figures, instead of fixing the figures to fit the budget.”

Gemma Tetlow, an IFS researcher, added that the manipulation might have created “real economic costs” by diverting officials from more valuable work in delivering public services.

Among the savings was a £2.2bn underspend in the NHS budget which Labour said was a “raid” on health spending that could have been used to prevent job losses amongst nurses and other staff. “David Cameron cannot justify cutting the front-line NHS to pay for his failed economic policies,” said the Shadow Health Secretary, Andy Burnham.

The IFS said a study of budget documents revealed that Britain’s sluggish economic growth would mean continued austerity for years to come.

It said the Treasury had halved its forecast for growth in 2013 to just 0.6 per cent. It also revealed that tax revenues were £5bn less than planned, pushing up the deficit. By the end of the current financial year, Whitehall departments’ budgets will have been cut by an average of 8.9 per cent, the IFS said.

If the additional austerity fell entirely on spending, it would mean that by 2017/18, departments would suffer unprecedented cuts of 18 per cent.

Rowena Crawford, of the IFS, said politicians would almost certainly prefer to find some of the money from tax. One option would be to avoid greater cuts in departmental budgets and keep the squeeze on spending at its current level. That would require new tax rises of £9bn in the two years after the election, the IFS estimated.

£9bn is the equivalent of more than 2p on the basic rate of income tax, and equal to £346 for every household.

Paul Johnson, the IFS director, said that tax cuts were “more likely than not”. But he said if not the implication for spending after 2015 was “grim”.

“The implication is that the real effect of public spending cuts pencilled in for the next Parliament will be even more severe than expected hitherto,” he said.

“Add to that the fact that we are promised more capital spending, more spending on social care and a more generous childcare subsidy, within an overall spending envelope that has not been expanded, and the outlook for all other unprotected spending looks grim indeed.”

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
News
news
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
New Articles
i100... with this review
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
Sport
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
i100
News
news
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
News
Blahnik says: 'I think I understand the English more than they do themselves'
people
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Research Manager - Quantitative/Qualitative

£32000 - £42000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam