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IFS warns of more spending cuts and tax increases

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George Osborne may have to abandon one of his fiscal targets – that debt should be falling in 2015/16 – and may need to announce yet more spending cuts or tax increases for the next parliament to continue to meet his other fiscal target, according to researchers at the Institute for Fiscal Studies.

A £13bn overshoot in borrowing arose from ‘an estimated undershoot in receipts of £17bn, offset partially by a £4bn underspend by Whitehall departments’, the IFS said.

IFS deputy director Carl Emmerson said: ‘Since the Budget, the outlook for the UK economy has deteriorated and government receipts have disappointed by even more than this year's weak growth would normally suggest.

‘As a result, the chancellor might find himself having to abandon one of his fiscal targets. If much of the additional weakness this year feeds into a permanently higher outlook for borrowing, then in order to comply with his other fiscal target Mr Osborne would need to announce yet more tax rises or spending cuts for the next parliament in next week's autumn statement. In that case the planned era of austerity could run for eight years – from 2010/11 to 2017/18.’

Chris Giles, economics editor at the Financial Times, wrote: ‘The question of how much extra austerity is needed rests on the degree to which the [Office for Budget Responsibility] determines the overshoot in borrowing to be temporary or persistent.’

The chancellor will deliver his autumn statement on Wednesday, 5 December at 12.30pm.