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LGC View: Surviving austerity, part two

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Many initially hoped that austerity would be a temporary phenomenon, part of the cyclical ebb and flow that has characterised the UK’s public finances since the second world war.

However, government statistics published last week showed cuts could last a lot longer than anticipated. The government’s deficit for 2013-14 is £48bn bigger than the £60bn figure forecast by the Office for Budget Responsibility in 2010.

The chief reason for this fiscal gap is that the government is receiving a lot less income tax than expected. While Britain’s recent job creation record is strong, much of the employment generated is so low wage that it never troubles the tax man.

Many hoped austerity would be a temporary phenomenon. But statistics published last week showed cuts could last a lot longer than anticipated

This has been exacerbated by the coalition’s decision to raise the tax free allowance to £10,000, effectively forsaking a large chunk of future revenues. Prime minister David Cameron told last month’s Conservative party conference he would extend this limit to £12,500.

The hope is that a large proportion of those low wage earners will move into higher-paid employment. If this doesn’t happen, the result will be long-term damage to the public finances – and councils will have to cope with the results of this.

In the party conference speech, Mr Cameron was competing with his fellow political party leaders to promise more money for the NHS. Therefore while the overall public finances face a further squeeze, the proportion left over for unprotected budgets, such as local government, is under even more intense pressure, as Soumaya Keynes of the Institute for Fiscal Studies outlines.

In this context, big cuts will need to be communicated effectively, according to Ben Page of Ipsos MORI.

Meanwhile, cutting over the long term demands a different set of management behaviours and indeed skillsets, as Cipfa chief executive Rob Whiteman writes.



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