Budget plans are thrown into limbo

GEORGE OSBORNE could be forced to either raise taxes or make even deeper spending cuts to meet his target of balancing the books, after abandoning plans to cut £1.3billion worth of disability benefits.

The disability benefit cuts were some of the only “real” savings that the Chancellor identified in his Budget last week, economists from two think tanks said yesterday.

They suggested that his plans to balance the books in 2020 are otherwise dependent on “shuffling” tax income or £3.5billion worth of unspecified spending cuts.

Ryan Bourne, the head of public policy at the Institute of Economic Affairs, said: “If the OBR [Office for Budget Responsibility] is right about the slowdown in productivity growth, then to continue to hit the surplus target, he is going to need to find deeper cuts. If the Government is already reversing real cuts, then the longer-term desire to hit a surplus target is going to require tighter spending elsewhere.”

Paul Johnson, the head of the Institute for Fiscal Studies, said: “The thing about this change was that it looks like a real cut in spending, as opposed to a lot of the other things that were getting us in surplus – £3.5billion of unspecified cuts, £7billion of shuffling money.”

There were suggestions last night that the Budget hole caused by the benefits reversal will not be resolved until the autumn.

The Sunday Telegraph understands that Iain Duncan Smith believes his resignation will protect the Work and Pensions department from cuts. A friend said: “He wants it very clearly communicated that enough is enough. It will make it almost impossible to come back on the welfare budget.”