Leaders: Only more cuts and higher taxes can balance books | Public needs clarity on Europe

A WEEK ahead of the Autumn Statement, Carl Emmerson, deputy head of The Institute for Fiscal Studies (IFS), warned that more tax rises or spending cuts would be needed and that “the planned era of austerity could run for eight years – to 2017-18.”

The IFS has now followed up this chilling prediction with another one, no less disconcerting: that further welfare cuts and tax rises “must be on the cards” to make the government’s numbers add up. The reason? It believes the spending cuts announced on Wednesday are “close to inconceivable”.

The Institute points out that because spending on education, the NHS and international development are protected from spending cuts, unsheltered departments could face cuts of 16 per cent after 2015 to make up for a £27 billion shortfall. This would take the total reduction since reductions began to more than 30 per cent. Further cuts, the Institute’s director warned, could target pensioners’ benefits.

All this would be on top of an already bleak outlook for almost every socio-economic group. The IFS says that overall, the announced plans reduce incomes for the wealthiest and for working-age people on benefits, while giving little to pensioners and workers on modest incomes. And the three-year cap of 1 per cent on rises in most benefits would “clearly create real losses for poor households with the least ability to cope with real falls in their income”.

Taking account of what has been happening to earnings, all parts of the working-age population have been losing out. As for middle income earners, the Institute calculates that the decision not to raise the threshold for the 40p higher rate of tax would mean that a million more people would become liable to the higher rate, taking the total to five million in the years after the 2015 general election. The IFS has a formidable track record in economic analysis and there is a powerful logic to its latest disturbing projections. Even if growth turns out in line with the latest forecasts from the independent Office for Budget Responsibility – and many analysts are sceptical that even the latest lower projections will be met – those areas of government exposed to further swings of the Treasury axe would face a deeply uncertain future.

In his statement, the chancellor continued to reassert his faith that government policy was still headed in the right direction. But he gave no assurances that further spending reductions would be avoided. When it comes to offering any assurances, ministers have little to offer other than a retreat into the foggy optimism of the Charles Dickens character Wilkins Micawber that “something will turn up”. It would certainly not be the first time in our history that chancellors have been reduced to a dependence on “something turning up”. But how many more one-offs such as the 4G licence sales can Mr Osborne count on to avoid this latest bleak prediction from the IFS?

Public needs clarity on Europe

So we now know what the president of the European Commission, Jose Manuel Barroso, considers the position of the commission to be as regards the status of new European states. It is clear from the written answer to MEP David Martin that if any territory votes to become an independent state then that new independent state would have to apply to join the EU in the normal manner.

But it is important to note that the EC says: “Treaties would, from the day of its independence, no longer apply on its territory.” It is also interesting to note the Scottish Government’s response: “Immediately following a Yes vote in autumn 2014, Scotland will still be part of the UK. Negotiations will then take place on the transfer of powers from Westminster to the Scottish parliament along with negotiations on the specific terms of an independent Scotland’s continued membership of the European Union. Ministers have always been clear that these negotiations will be needed – but the crucial point is that they will take place from within the EU.”

The view might be that although the European Commission makes statements now about where it sees the law, perhaps with an eye on other parts of Europe, that position could change in two years’ time and with sufficient negotiations. Maybe that is so.

But this means the Scottish voters, as they go into the referendum, will probably have no clear view of Scotland’s position in Europe before they cast their vote. Although not a vote-decider for many people, it will be a key issue. It would help if the Scottish Government and the EU could at least give some agreed steer

before the vote. They have two years to get one together.