The Institute for Government says austerity could last beyond 2020 as the Government turns from reducing the deficit to cutting its debt.
At a joint Institute for Fiscal Studies and IfG briefing in London this morning ahead of the 2015/16 spending review, IfG deputy director Julian McCrae said strict controls on public spending could stretch beyond 2018 when the Government predicts the deficit will be eliminated.
The warning raises the possibility that the next two general elections will be fought on the basis of spending cuts.
Chancellor George Osborne is set to deliver his spending review for 2015/16 on 26 June when he is expected to announce further cuts to departmental budgets.
McCrae says: “The real issue is where we get to in 2017/18. We are reducing the deficit but the UK will still have around 90 per cent debt levels in 2018 which is quite an uncomfortable level in public finances.
“After dealing with the deficit problem the Government then has to deal with its debt problem. If you think in these terms austerity could easily last beyond 2020.”
IFS director Paul Johnson says there are a series of spending problems beyond the current deficit that could see “difficult decisions” last for nearly another decade.
He says: “If the cost of debt interest goes up with a 90 per cent debt level then it takes up a bigger chunk of spending. In the long run it could make a big difference.
“There are also a series of things such as demographic change for pensioners and healthcare costs as well as debt interest.
“Even after the current public spending problems there are a series of really difficult decisions to be made after 2016 and even beyond 2020.”