The Institute for Fiscal Studies says plans to boost the economy announced in this week’s autumn statement are unlikely to have any impact on growth, according to reports.
Setting out its assessment of the statement yesterday, the IFS also said the scale of cuts to public spending over the next seven years is “unprecedented” since the end of World War Two.
In Tuesday’s statement, Chancellor George Osborne announced a small firms investment scheme, £5bn on new spending on infrastructure and an agreement with pension funds to leverage £20bn of investment into public infrastructure projects as well as a £20bn credit easing programme for businesses.
According to the Telegraph, IFS senior research economist Helen Miller says: “I do not think any of this looks set to be the key to unlocking our long-run growth potential. All these plans are quite small.”
The extra spending on infrastructure must be seen in the context in the context of more than £20bn worth of cuts to infrastructure spending between 2010 and 2015, she said. She added that there is a lack on necessary detail on the credit easing and pension fund infrastructure investment programmes.
Alongside Osborne’s statement, the Office for Budget Responsibility released new figures downgrading growth forecasts. It now expects 0.9 per cent growth for this year and 0.7 per cent next year. In March, it put those figures and 1.7 per cent and 2.5 per cent respectively. The Bank of England has said it does not expect growth of more than 1 per cent in 2011 or 2012.
Over the next seven years, public spending will be cut back by 16.2 per cent. A 9.3 per cent reduction in the 1970s is the closest reduction in spending since the 1940s. IFS director Paul Johnson says: “One begins to run out of superlatives for describing quite how unprecedented this is. Certainly there has been nothing like it in the last 60 years.”
He says the Chancellor must be “keeping his fingers crossed that something turns up” which enables him to deliver a further £23bn of “entirely unspecified” cuts announced in the statement. After the last round of spending reductions, Johnson said, it will be much harder to find savings because there should not be “any waste left.”
Responding to the Chancellor’s statement, Shadow Chancellor Ed Balls attacked the Government’s approach to the economy saying it was undermining growth and forcing the Government to borrow more.