£48bn of spending cuts needed by 2018, argues report

Alarming public finance figures indicating further eye-watering cuts and prolonged austerity suggest the Government should focus on localising public finances and economic growth, a think tank has urged.

An analysis issued today by cross-party think tank the Social Market Foundation (SMF) and the Royal Society of Arts (RSA), based on models used by independent forecasters the Office for Budget Responsibility (OBR), indicate an extra £48bn of additional tax hikes or spending cuts will be required by 2018.

According to the report, Fiscal Fallout, the likelihood of a greater than anticipated black hole in the nation’s finances – the March Budget implied only £26bn of cuts would be needed beyond the current Spending Review period – suggests unprotected Whitehall departments will see their budgets shrink by nearly a quarter (23%).

In effect departments would face sharper yearly cuts of 3.7% between 2015 and 2018, compared with 2.3% under the current Spending Review – making some departments like the Home Office and Ministry of Justice 40% smaller than they were at the start of the decade.

To balance the demands of deficit-reduction and public service reform, the RSA argues for a radical re-evaluation of how public services are delivered, focusing on localising public finances, promoting preventative services and promoting ideas like localised spending on growth.

Report author and director of the SMF, Ian Mulheirn said the OBR’s modelling shows the economy has less room to bounce back. ‘Combined with high public borrowing since March this implies a much bigger black hole in the public finances, making the stakes for the next spending review higher than ever.’

'Combined with the savings pencilled in at the last Budget, the developments since March mean that the Chancellor will have to lay out some eye-waering cuts at the next spending review and will prolong austerity deep into the next parliament.

Ben Lucas, chair of public services at the RSA said: ‘Faced with the unprecedented level of cuts to public spending outlined by the SMF, we can’t continue to tinker around with a model of public services that was designed in the 1940s. What’s needed is a radical new approach based on social productivity which moves away from Whitehall towards local-based collaboration, integration and shared services.’