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Thursday 04th of February 2010
February 3, 2010    

IFS issues caution to Government in its quest to repair public finances

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by Kay Murchie
”IFS

A report by the Institute for Fiscal Studies (IFS) has said the Government needs to be ambitious in tackling the public finances but warned that economic recovery should not be put at “undue risk”.

The Institute believes an extra £13 billion in tax hikes or spending cuts is required by 2015-16 in order to repair public finances.

In its report, the IFS said the Government should aim for fiscal tightening of 5% of national income, or £70 billion by 2015-16 - rather than the proposed 4.1%.

However, the current fragile state of the economy means the Government should not embark on extra budget-tightening this year, warned the IFS.

In addition, it is forecasting economic growth of 2% a year over the next five years, lower than the Treasury’s estimate of 3%.

Its report comes as leading economic think tank, the National Institute of Economic and Social Research (NIESR), warned the Government that if it plans to halve the budget deficit over the next four years, much tighter spending controls are required.

“Plans for fiscal consolidation will not be sufficient to start bringing down net public debt as a share of GDP by the middle of this decade, as the Treasury expects. Instead it will carry on rising,” said the NIESR.

In order to stop the rising national debt, the NIESR also believes additional spending cuts or further tax hikes, or a combination of both, will be required.

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