Prime Minister Gordon Brown's government may have to cut spending at the sharpest pace since Britain negotiated its finances with the International Monetary Fund (IMF) in 1976, the Institute for Fiscal Studies (IFS) said.
The non-partisan research group estimated the government will squeeze its budget by 2.9 per cent a year from 2011, more than the 2.3 per cent it expected in April. It based its analysis on Treasury documents obtained by the Conservative opposition.
"What we have learned from the leaks are the government's plans to cut spending by 2.9 per cent each year, which is the tightest since the IMF imposed spending plans in the late 1970s," said Gemma Tetlow, a research economist at the group that counts the Bank of England and Treasury among its clients.
The forecast undermines Brown's suggestion that the government can safeguard funds for education, police and other public services while the Treasury works to put a lid on the budget gap. Britain's shortfall next year will exceed 12 per cent of gross domestic product, the most in the Group of 20 nations.
Conservative leader David Cameron, who passed out the documents to journalists in London on Wednesday, said they show Brown has misled Parliament about the scale of the fiscal tightening that must follow the next election due by June.
The documents suggest Britain will pay £63 billion ($104 billion) on debt interest in 2014, more than it spends on education. The IFS estimated that to avoid spending cuts the Treasury would have to raise taxes by £29 billion, amounting to 2.1 per cent of national income or £930 pounds a family per year.
"The risks of having such a huge deficit are a drag anchor on the recovery," Cameron said at a press conference Wednesday. Brown "was saying one thing in Parliament. Documents say he was doing something different. He has to explain himself."
Until this week, Brown has refused to acknowledge that cuts will be needed to erode the national debt which is due to more than double by 2014. Instead, he characterised Labour as the party that would keep public spending rising while the Conservatives were the party of cuts.