UK facing austerity measures until 2021, Institute of Fiscal Studies warns

Paul Johnson said the Chancellor 'moved the furniture' around with the Budget. Credit: ITV News

ITV News Political Editor Robert Peston reports.

George Osborne has been accused of just "moving the furniture around" in his Budget, according to the Institute of Fiscal Studies (IFS), which has also warned that the UK is facing austerity measures into the next decade.

IFS Director Paul Johnson said the Chancellor has 'very little room for manoeuvre' because of the weakened growth forecast for the economy from the Office for Budget Responsibility (OBR).

He added that this could lead to a period of falling wages and lower living standards as the Chancellor tries to reach his surplus target for 2019/2020.

Mr Johnson added that "given the uncertainty in all of the forecasts the Chancellor probably only has about a 50/50 shot" of making the surplus without having to raise taxes or carry out more drastic cuts to public spending.

The Chancellor was forced to admit that he would need tens of billions more borrowing after the OBR said growth would be lower than expected.

That loss largely arises from changes in assumptions about future productivity growth over the rest of the parliament. If the OBR is right about that, we should all be worried. This will lead to lower wages and living standards, not just lower tax revenues for the Treasury.

IFS Director Paul Johnson

The head of the leading economic think-tank said the Chancellor actually "made life harder for himself" with yesterday's Budget because of his decision to delay more drastic action on taxes and spending in the time leading up to 2019/2020.

These risks are exacerbated by the fact that there are in fact £8 billion of tax cuts in the Budget. If there was another downgrade in fiscal forecasts of a similar magnitude and the Chancellor did wish to remain on course to deliver a budget surplus in 2019/20 then this would surely require more real policy change - presumably incorporating at least some permanent tax rises and specific spending cuts.

IFS Director Paul Johnson