Budget brings longest, deepest cuts since second world war, IFS says

Institute for Fiscal Studies director Robert Chote questions George Osborne's claim that budget was 'progressive'


* Larry Elliott and Katie Allen
* guardian.co.uk, Wednesday 23 June 2010 14.36 BST


George Osborne's emergency budget will usher in the longest era of cuts to spending on public services in post-war history, according to the Institute for Fiscal Studies.

The respected thinktank's keenly awaited analysis of the new government's spending cuts and tax hikes also questioned Osborne's claims of fairness.

IFS director Robert Chote said the claim that the budget was "progressive" was debateable.

He believes Britain is looking at "the longest, deepest, sustained period of cuts to public services spending at least since the second world war".

Osborne's first budget yesterday imposed austerity measures on every family in Britain. He announced a £40bn package of emergency tax increases, welfare cuts and Whitehall spending restraint designed to slash the budget deficit by the end of the parliament.

The chancellor said the "unavoidable budget" required a VAT rise from 17.5% to 20% next January, higher capital gains tax, a levy on banks, a two-year public sector pay freeze and less generous benefits, but insisted the package was needed to prevent the financial markets from turning on Britain.

The City did appear to welcome the budget's focus on cutting the deficit sooner rather than later, with ratings agencies commending Osborne's plans. Today, Moody's said the proposals were "supportive" of Britian keeping its coveted, top-notch AAA rating. That followed Fitch's comments yesterday that if delivered upon, the budget would "materially strengthen confidence in UK public finances and its AAA status".

Moody's described the budget as "a key step towards reversing the significant deterioration in the government's financial position that occurred over the past two years".

"The budget confirmed the UK government's intention to eliminate the structural current deficit by 2015-16," said Moody's senior credit officer Kenneth Orchard. "Successful implementation would return the government's finances to a more sustainable trend."

Still, the ratings agency did highlight some risks around the budget, including the likely blow to domestic demand which it is assumed will be offset by robust growth in net exports and a decline in private sector net savings.

"Moody's believes these assumptions to be sound," said Orchard. "But it should be emphasised that, if these assumptions do not hold up, the decline in the deficit may be lower than assumed."

Budget brings longest, deepest cuts since second world war, IFS says | Business | guardian.co.uk