Public spending cuts 'to mirror 1970 levels'

Finance | Gareth Jones | 21 Oct 2009

Forthcoming government cuts in public spending will be as high as cuts made in the recession of the 1970s, Robert Chote, director of the Institute for Fiscal Studies warned charity finance leaders earlier this week.

Speaking at the Charity Finance Live conference about the state of the UK economy over the next five years, Chote said the government had implied a cut in spending by 3 per cent a year in real terms from 2010. Over three years this would result in around £33bn in savings.

“We haven’t seen anything that tight since the Labour government was negotiating with the IMF back in the late 1970s,” Chote explained.

Chote further warned that if the Conservatives came into power next year the squeeze would intensify as they were keen to cut spending faster to reassure international investors.

“If we do it quickly there will be eye-watering adjustments. The Tories have said that they want to protect health and overseas aid. So other departments will fall by more – to around 4.9 per cent a year. It does carry the risk of derailing the fragile economy recovery.

“If the Tories go faster it would probably lead to tax cuts and less welfare.”

On the tax treatment of charitable donations, Chote said this could go one of two ways, and that the government must weigh the benefit of having a strong charitable sector at a time of public service squeezes, against the "avoidance of tax avoidance".

Who's Who: Gareth Jones

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