According to researchers, had inflation in the public sector been running at the same rate as the whole economy over the past three years, public services would have cost £15bn less than it does now.
‘We’ve not just got the problem of government spending,’ said Douglas McWilliams, chief executive of the Centre for Economics and Business research. ‘We’ve also got the problem of an economy that looks like its going to grow much less rapidly over the next few years than it has over the last two.’
Chancellor Gordon Brown has already assumed a growth rate of between 3%and 3.5% for next year. However, this is now way off target according to McWilliams who said that the figure is ‘absolutely out of the range of even the most widely optimistic forecaster outside of the Treasury’.
He added: ‘Our own forecasts are about 1.5% for next year.’ The difference in figures accounts for about £17.5bn.
‘It does seem that NICs are the chancellor’s chosen weapon,’ said Ruth Lea, head of the policy unit at the Institute of Directors. ‘What has always worried me about the chancellor’s fiscal policy is that he takes huge risks with the economy.’
She said that the difference between Brown’s estimates and the economic reality was just like the economy in the early nineties.
‘These things can deteriorate very rapidly if you’re not careful,’ she said. ‘I think that the chancellor has been very complacent.’
John Whiting, a tax partner at PwC and former president of the Chartered Institute of Taxation, said: ‘There’s a gap in funding between what’s been raised and what’s been promised for spending. I would imagine that the government would be unwilling to be seen to increase employee taxation so they might be tempted to load it on to employers.’
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