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Where the PBR axe will fall

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The scale of the funding cuts heading local government’s way became a little clearer last week in the wake of the chancellor’s commitment to limit increases in current expenditure to 0.8%.

Most of the public sector will face funding cuts of more than 12% over the next two financial years, analysis by the respected Institute for Fiscal Studies thinktank revealed.

The IFS claimed that pledges to protect health, schools, early years and overseas aid budgets would leave the rest of the state facing cuts of £25.5bn.

Gemma Tetlow, a senior research economist at the IFS, claimed the cuts would effectively wipe out all the spending increases of the second and third Labour governments.

In his statement, chancellor Alistair Darling confirmed that total public spending would be frozen between 2011-12 and 2013-14, with current spending rising by 0.8% each year and investment slashed by almost 20%.

However, the effects of uncontrollable expenditure, such as debt interest and social security payments, mean that government departments will be looking at cuts of 3.2%, or £35.7bn, each year.

When the effects of planned efficiency savings and the protected areas of spending are taken into account, the final total comes out at £25.5bn.

Despite the scale of the cuts, Robert Chote, the IFS’s director, said the pre-Budget report amounted to a slackening of the pace of fiscal tightening.

“The chancellor has always had a balancing act to accomplish between supporting the economic recovery and repairing the public finances,” he said. “It will be interesting to see what conclusion investors draw about the credibility of the government’s commitment to repair the public finances as promptly as it is safe to do so.”

Despite the looming cuts, communities secretary John Denham welcomed the pre-Budget report as a “fair outcome for local government”, but warned that hard times lay ahead.

“Local government - like national government - will have to share in the tough choices that need to be made,” Mr Denham said.

“This will include tough decisions on top pay, on the costs of senior management and how local authorities organise their services. The public will not forgive local government if front-line services are hit when inefficiencies remain.”

Meanwhile, Ms Tetlow claimed the new data from the PBR meant that the Conservatives would have to find spending cuts or tax rises amounting to anything between £10.4bn and £21.4bn if they were to match Labour’s plans for total spending while also protecting health and overseas aid budgets.

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