Families face further tax rises as think tank predicts more job losses

Think tank predicts Chancellor is due to borrow £64bn more than planned by 2015 (Getty Images)

Families face further tax rises or more cuts to welfare spending because of the continuing weakness of the economy, a respected think tank warned today.

The Institute for Fiscal Studies (IFS) predicted 1.2m jobs would be lost in the public sector as austerity measures bite – 300,000 more than originally forecast by the Office for Budget Responsibility.

It said that areas not protected from cuts – such as the Home Office and the environment – could expect to see their budgets slashed by up to 35 per cent by 2017-18.

The IFS said: “Avoiding such deep cuts to public services, whilst sticking to fiscal plans, would require substantial and additional cuts in social security spending; or tax rises would need to be implemented.”

It pointed out that newly elected Governments tended to announce substantial tax increases, adding: “Considering this trend, and in the context of the current fiscal situation, further tax rises following the next election would not be surprising.”

The Government has promised to protect the National Health Service, schools and overseas aid from cuts – and David Cameron has suggested that defence equipment could be added to the list.

The IFS director, Paul Johnson, suggested it would be difficult to continue shielding all these areas after the next election.

He said: “The effects of concentrating all those cuts on currently unprotected areas of public service spending look hard to contemplate. A more likely scenario perhaps is that other choices will be made after the next election.

“Taxes could rise, hitherto protected elements of public spending, like the NHS and pensions, could be hit, or the date at which we reach fiscal balance will be pushed further out.”

The IFS found Mr Osborne was due to borrow £64bn more than he planned by 2015, due to the poor performance of the economy, and borrowing is likely to be higher this year than in 2012.

The TUC General Secretary Frances O’Grady, said: “The IFS is right. If the government does not change course then there could be well over a million job losses in the public sector and savage cuts to vital services.

“This is the direct consequence of austerity policies that have shrunk the economy and cut living standards for millions.”