According to the IFS, parts of the public sector with low labour turnover – such as government departments including the Home Office and the Ministry of Justice – may find it difficult to reduce the size of its workforce on the scale and in the time frame outlined in the Comprehensive spending Review.
The IFS warns: “Overall, with such large downside risks to the public finances, having alternative plans to hand could prove useful.”
It suggests that the Government should review its spending cuts in a couple of years’ time, taking into account any changes to the economic outlook or difficulties faced by departments in slashing budgets.
Despite the disappointing growth figures released last week, the IFS forecasts that any fiscal loosening aimed at boosting the economy could be ineffective and it warned Chancellor George Osborne to resist the temptation to “engage in any significant net giveaway of the budget”.
TUC general secretary Brendan Barber said the report showed what a “risky gamble” the Government is taking with the economy.
“The fastest and deepest cuts of any major country are slowing the economy, which risks making the deficit bigger rather than smaller,” Barber argued.
“Only economic growth and getting the jobless back to work can bring the deficit down in a way that does not do huge damage to the fabric of our society. The IFS is right to say that we need a plan B.”