LONDON – Britain faces “big and painful” cuts in public spending to fix state finances should it decide against more U-turns over recently unveiled tax cuts, a leading think tank warned today.
The verdict from the Institute for Fiscal Studies (IFS) came one day after finance minister Kwasi Kwarteng brought forward a debt-reduction plan and economic forecasts after the budget spooked markets.
Kwarteng, whose official title is chancellor of the exchequer, has already been forced to axe a tax cut for the richest earners, in the face of outrage as millions of Britons face a cost-of-living crisis with UK inflation around 10%.
The government of new Prime Minister Liz Truss last month sparked turmoil with a costly tax-cutting budget that triggered panic over ballooning state debt.
Her intention, to boost Britain’s recession-threatened economy, had the opposite effect, crashing the pound and pushing up the government's repayments on borrowing.
“With a weaker economy, getting government finances on a sustainable path without cancelling tax cuts could force...big and painful spending cuts,” the IFS said in its study.
Reducing debt “through spending cuts alone, without actually specifying which budgets would be cut, risks stretching credulity to breaking point”, it added.
Kwarteng needs fiscal tightening – spending cuts or tax hikes – totalling more than £60 billion (RM310.5 billion) just to stabilise debt levels by mid-2027, it added.
Even with faster-than-expected economic growth, Kwarteng would need to find £40 billion, the IFS estimated.
“Cuts on this scale would require some big choices,” the research group noted.
Fears are mounting over a new wave of austerity – similar to that seen after the global financial crisis – that will slash spending on public health and education.
This has so far been dismissed by the Truss administration.
UK public borrowing is set to hit almost £200 billion in the country’s current fiscal year that ends next April – its third biggest amount on record, according to the IFS.
It has been higher only in the wake of the Covid-19 pandemic and 2008 financial crisis. – AFP, October 11, 2022
