ALISTAIR Darling and Gordon Brown have put off the post-Budget "fiscal repair job" that the nation's finances will require until after the next election, a respected economic think-tank has warned.
The Institute for Fiscal Studies gave the warning yesterday as it published the first detailed analysis of Darling's first Budget.
According to the IFS, Wednesday's statement was the seventh Labour Budget in succession in which the Treasury ha
d been forced to concede that the outlook for the public finances was worse than it had previously stated.
IFS analysis showed that the expected peak in public-sector net debt had increased again and the date at which the current Budget balance was expected to return to the black had also been delayed.
After crunching the numbers overnight, the institute warned that the consequence of the tax and spending plans in the Budget will be that Labour will have to make an £8 billion cut in spending if it wins the next election.
The IFS's claim was based on analysis of the small print in the Budget "red book", which suggested a £7.5bn deterioration in the public finances since the Pre-Budget Report last October.
IFS director Robert Chote, pictured below, maintained that Darling would have to find a further £4bn in cuts in his next spending review – scheduled for 2009 – on top of the £4bn already pencilled in. Chote said: "To make the numbers add up, he is now looking for an £8bn spending cut over the two years covered by the 2009 spending review."
But he claimed that effect of the measures would not bite until after the next general election, which must be held by May 2010.
He added: "If the 2008 Budget was not a good time to deal fully with the underlying weakness of the public finances, it seems unlikely that next year's will be either. If there is a fiscal repair job to be done, Mr Darling and Mr Brown may be leaving it until after polling day."
In the meantime, the IFS warned the UK government was likely to face intense pressure to increase spending on some of its key priorities. Despite Darling's £800 million-a-year package to cut child poverty by 250,000, the IFS said the government would still miss its target of halving child poverty by 2010 unless it came up with more cash in next year's Budget.
The government could also face calls to continue the one-off increase in the winter fuel allowance for pensioners – at a cost of £575m a year – and for further delays to the 2p increase in fuel duty, which costs £550m for every six months that it is postponed.
Gemma Tetlow of the IFS said it could leave Darling struggling to meet the government's self-proclaimed tax and spending rules. "It looks as if he has very little room to manoeuvre. He will certainly be hoping that his forecasts for the current Budget don't prove to be overly-optimistic," she said.
The Budget plans were based on a forecast that the current economic slowdown would be relatively short-lived and that the economy would start picking up again from next year.
Darling yesterday rejected suggestions that he was being over-optimistic, despite fears that the global downturn triggered by the collapse of the subprime mortgage market in the US might be far more severe and protracted than first thought.
He said: "When you get this period of uncertainty, the right thing to do is to allow your tax policy and your fiscal policy to support the economy; that's what we're doing. I am taking a cautious view.
"We are going through pretty uncertain times, but I believe our projections are in line with what people are saying and most people expect our economy to grow."
The full article contains 638 words and appears in The Scotsman newspaper.
