IFS: councils face 40% cash cuts by 2018 without protection

Local government is at risk of massive real-terms cash cuts of close to two-fifths by 2018 without changes to welfare budgets and tax levels, leading financial experts have claimed.

Paul Johnson, director of the respected Institute for Fiscal Studies (IFS) issued the stark warning yesterday, following publication of the organisation’s analysis into the Chancellor's Autumn Statement.

Mr Johnson said the impact to public service expenditure would depend on decisions taken on the welfare and NHS budgets, which together account for nearly half of all Government spending.

‘Protect them completely, and protect schools, and every other area of spending will have to fall by 16% in the three years after the next election,’ Mr Johnson said.

‘On top of what has happened in this Spending Review period that would take cuts in unprotected departments to an average of over 30%. That looks inconceivable,’ Mr Johnson added.

Unprotected parts of the public sector - excluding the NHS, schools and overseas aid budgets - face real terms cuts of close to one third - 31.5% by 2017/18, according to IFS calculations based on figures published by the Treasury and Office for Budget Responsibility.

At the current rate of decline, departmental expenditure limits – resource cash budgets – are falling by 2.3% a year. Ministers would need to raise £27bn from tax hikes or welfare cuts to ensure there would be no cuts to such resource budgets between 2014/15 to 2017/18, said Rowena Crawford, a senior research economist at the IFS.

Mr Johnson said without fiscal intervention, the impact of spending cuts would in practice be closer to 40% for local government and other public services already subject to cuts greater than 25% over the current Spending Review period. During a question and answer session, Mr Johnson said he anticipated higher reductions to the welfare and benefits bill and cuts across a ‘series of areas that have not shared as much pain as other parts of the public sector' would mitigate such 'inconceivable' levels of cuts being made.

The IFS also calculated a total of 1.1 million public sector jobs will be lost between 2011 and 2018 – an addition of 200,000 on figures originally forecast by the OBR. Speaking yesterday, chancellor George Osborne said two private sector jobs were being created for every single job shed in the public sector.