Massive 25% spending cuts on the way for Britain

"Vagueness": Alistair Darling's Budget was criticised by economists

Spending on key services including defence, transport and housing could have to be slashed by up to a quarter.

The unprecedented scale of likely cutbacks after the election was laid bare by independent economists a day after Alistair Darling's Budget raised state spending even higher.

The economists criticised ministers for leaving huge questions over where the axe would have to fall. But all agreed that serious cuts would be needed to deal with Britain's debt crisis.

The respected Institute for Fiscal Studies also criticised the Budget for squeezing the poor. In an assessment of the tax and spending package, it lambasted the Chancellor for the "vagueness" of his Budget.

The eye-watering cuts in some departments would be needed to honour the Chancellor's commitment to protect spending for Labour's election priorities — the NHS, schools and overseas aid. Cuts of 20 per cent would also be needed in other departments if overseas spending was safeguarded.

Other Whitehall spending, such as on higher education, may have to be cut by 25 per cent between 2010-11 and 2014-15. In addition, local government will also bear the brunt of £11 billion of new efficiency savings — which could send council tax bills soaring.

The IFS also said that there could be a £3.7 billion-a-year windfall because of lower unemployment by 2014-15. However, it also criticised Mr Darling's attempt to boost entrepreneurs with changes to capital gains relief, dismissing it as a "dead weight loss" that would give cash to businessmen who had already made gains.

In a further blow to Mr Darling, the IFS attacked the Budget rise on stamp duty for £1 million homes. It said that there was "something wrong" with a policy that meant a £1 increase in a house price resulted in a £10,000 tax rise.

The think tank also found that the Budget had actually hit the poorest harder than the richest. When marginal effects on stamp duty and inheritance tax were stripped out, the changes were "slightly regressive", it said.

The IFS said that the Treasury had failed to identify more than £24 billion in claimed efficiency savings for the past three years. The economists also said Mr Darling's growth and borrowing forecasts gave neither political party much room for manoeuvre after the election. The wriggle room was "more modest than it looks, if there is any at all", they said.

But the Tories also came under fire as the IFS said that they still needed to find an extra £8 billion to meet their own plans for fiscal tightening.

IFS chief Robert Chote said: "Judged against the more testing yardstick of providing a detailed picture to the voters and financial market participants of the fiscal repair job in prospect beyond the election, the Budget will have fallen short of many people's hopes.

"There are an awful lot of judgments still to be made or revealed, notably with regards to public spending over the next parliament. This greater-than-necessary vagueness allows the opposition to be vaguer than necessary too."

Liberal Democrat Treasury spokesman Vince Cable said: "The Government has a £50 billion black hole in its finances. It has not come clean on the scale of the cuts that are going to be required. They are taking refuge in fantasy numbers."

Shadow chancellor George Osborne said Mr Darling was "not being straight with people". He told Sky News: "He has frozen the personal income tax allowance. That is an effective tax rise on 30 million working people, because when he said he was going to freeze it last autumn, inflation was negative. Now inflation is 3.7 per cent on the RPI.

"What that means, in effect, is a tax rise for millions of working people and, if you're someone on the basic rate, that's around £50 extra tax a year, if you're a couple, about £100 extra tax a year, and of course that's not including the National Insurance tax on people's incomes which is coming down the track."

Mr Darling today defended putting off difficult decisions about the deficit and denied hiding a tax rise for millions. He claimed that uncertainty over unemployment meant a comprehensive spending review could not begin until this autumn.

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