Massive public spending cuts are needed in future as a result of the current financial crisis, a group of experts has demonstrated.
The government could become caught in a disastrous debt spiral, a respected financial organisation has claimed.
According to the Institute for Fiscal Studies (IFS), the public finances are likely to deteriorate to the extent that ministers will be forced to chop almost £80 billion from their annual budgets by 2016. This total combines the £39 billion of cuts the government already concedes will be needed to keep a lid on their debts, along with an extra £38 billion deemed necessary by the group.
Moreover, the IFS predicted that the public deficit - the amount by which it is spending more than it earns - will expand to well over ten percent of annual economic output over the next three years. This could lead to the total government debt mountain doubling to an overall 80 percent of output by 2016.
Ministers face severe financial pressures as a direct result of the credit crunch and economic downturn experienced across the world in recent months.
The recession has led to a shrinking in tax revenues, one of the main ways in which a government raises cash. Rising unemployment also increases the burden on the public purse, due to the higher number of people claiming state benefits rather than drawing a salary.
Meanwhile, prime minister Gordon Brown and chancellor Alistair Darling have introduced a range of "fiscal stimulus" measures aimed at promoting economic growth against the downturn. These include the temporary VAT reduction announced in November last year - which is likely to cost the government more than £10 billion over its 13-month duration - and a range of public works expansions.
"If these projections turned out to be accurate, this would imply the need either for further tightening measures later or for less ambitious goals for the repair of the public finances," the IFS concluded.
