Budget 2013: IFS warns of £9bn tax rises after election

George Osborne’s budget will be so difficult to implement an incoming government would have to raise taxes, the IFS said. Photograph: Olivia Harris/Reuters
Tax rises of up to £9bn – equal to a 2p increase in the basic rate of income tax – could be imposed after the next general election to limit further cuts in public spending, experts warned on Thursday.

The scale of the spending cuts scheduled for 2015 in George Osborne's budget will be so difficult to implement an incoming government would have little alternative but to raise taxes or borrow more, the Institute for Fiscal Studies said.

The IFS, which produces a keenly watched analysis of the chancellor's budget, gave its warning after the Treasury's independent forecaster, the Office for Budget Responsibility, warned that growth would halve this year to 0.6% and the recovery would be weaker than predicted only in December.

There was speculation in the City following the poor figures that the UK could face its second credit downgrade as soon as the weekend. Ratings agencies Standard & Poor's and Fitch have the UK on negative watch and both have warned that a weakening of the recovery could lead to their stripping Britain of its AAA status. Osborne would face a second humiliation after Moody's issued a downgrade notice last month.

In a budget that kept the coalition tied to its austerity theme, Osborne was forced to admit that the UK would take two years longer to push the annual deficit below 3%. A rise in the personal income tax threshold to £10,000 next year, together with a 1p cut in beer duty and the abolition of a planned fuel duty rise in the autumn, were offset by a further tightening of Whitehall budgets to leave what the IFS described as a fiscally neutral budget that masked a further deterioration in the government's finances.

Osborne plans to keep spending at its current level until 2015 before a second wave of steep cuts takes effect up to 2018. The IFS said the government was delaying some austerity measures until after 2015, leaving the next government to bridge a large gap in Whitehall's finances.

Rowena Crawford of the IFS said politicians were likely to prefer tax rises to avoid making further spending cuts. "That is after an election and it is much more possible that a future government will prefer to increase taxes instead," she said.

Tony Travers, a director of research at the London School of Economics and an expert on local government finance, told Public Finance magazine: "You wouldn't know it from the headline figures, but local government, along with some other unprotected and unloved public services, looks likely to face at least 50% spending cuts between 2011-12 and 2017-2018."

Spending figures until 2018 show the debt bill has risen by £70bn since forecasts in the autumn statement and by almost £250bn since the coalition took office.

The IFS criticised Osborne for devoting senior civil servants' time to manipulating public spending figures to meet a pledge that the deficit would fall in successive years. The chancellor grabbed £10.9bn in underspends by Whitehall departments to squeak this year's debt bill under last year's £120bn deficit by £100m. More than £2bn came from an underspend in the NHS while a further £3bn came from defence.

He also delayed payments to bodies such as the World Bank and the European Union and brought forward a planned cut in a long-standing national insurance benefit to final salary pension schemes to reduce the annual bill. Some budget spending commitments were also delayed until after the election – including a £3bn infrastructure programme championed by the business secretary, Vince Cable, and £1bn for social care – which will not take effect until after April 2015.

The IFS said a ringfence around the NHS, schools, international development and defence equipment to protect them from cuts left further reductions in departmental spending limits to fall disproportionately on the remaining services.

Under pressure from backbench Tory MPs to sweeten the pill of welfare cuts already scheduled to hit this year, Osborne chose to let borrowing rise higher over the next two years than the government planned.

Paul Johnson, the IFS director, said: "Year-on-year real cuts in departmental spending have effectively come to an end for the period of this parliament." Tax cuts in the budget entailed a "modest loosening" in the next two years.

He pointed to a Treasury note in the budget documents saying bridging the gap between lower than expected tax receipts and spending commitments would need to be addressed by tax changes.