As a result, spending on services like the police, defence, transport and justice could be cut by a third by 2017/18 under current Government spending plans, .
The plans suggest 1.2 million job losses in the public sector by that date, 300,000 more than predicted by the Government’s official forecasters, according to the Green Budget published by the Institute for Fiscal Studies.
The respected economic think-tank said Chancellor George Osborne’s failure to hit deficit reduction targets means tax rises or “substantial” additional cuts in welfare benefits are likely after the 2015 general election to avoid “hard to contemplate” cuts in Whitehall budgets.
The fiscal position may force the Chancellor to raid pensioner benefits, the NHS, schools or overseas aid, hitherto protected from cuts, said the report.
“Over the last 30 years, tax rises announced in the year after a general election have averaged £7.5 billion,” said the IFS.
“Considering this trend, and in the context of the current fiscal situation, further tax rises following the next election would not be surprising.”
With the public finances failing to come into balance as quickly as Osborne had hoped, IFS director Paul Johnson questioned whether the Chancellor can continue to shield the NHS, schools and overseas aid from cuts.
The Government has said it will continue to protect these three areas from cuts in the spending review for 2015/16, now being negotiated.
But Johnson said extending the protection further would mean spending on other departments – like the Home Office, Defence and Environment – falling by a third by 2017/18.
If the budget for defence equipment was protected, as Prime Minister David Cameron has suggested, that figure would rise to 35%.
Whitehall departments have so far relied heavily on job losses to meet the Chancellor’s austerity demands, and if they continued to do so at the same rate, 1.2 million public sector jobs could go by 2017/18, compared with the 900,000 forecast by the Office for Budget Responsibility, said the IFS.
Johnson said: “As economic performance and forecasts have worsened, the Chancellor has followed a dual strategy. He is allowing borrowing to increase substantially in this Parliament – allowing the automatic stabilisers to work – whilst promising another dramatic dose of public spending cuts in the next Parliament.
“The effects of concentrating all those cuts on currently unprotected areas of public service spending look hard to contemplate. A more likely scenario perhaps is that other choices will be made after the next election.
“Taxes could rise, hitherto protected elements of public spending, like the NHS and pensions, could be hit, or the date at which we reach fiscal balance will be pushed further out.”
TUC general secretary Frances O’Grady said: “The IFS is right. If the Government does not change course then there could be well over a million job losses in the public sector and savage cuts to vital services.
“This is the direct consequence of austerity policies that have shrunk the economy and cut living standards for millions.
“Even policies designed to boost investment are failing; now we learn that the Bank of England’s lending boost has failed to help business and instead gone to mortgages.
“The Chancellor needs a budget for growth, jobs and families. His medicine is failing to cure the patient, and has toxic side effects. As the IMF now recognises, it’s time for a new approach.”