Whitehall's Ministry of Justice, higher education department and the Home Office face potentially-huge cuts to service budgets after next year's general election, as officials wrestle with ways of plugging the black hole in Britain's public finances, experts have warned. The independent Institute for Fiscal Studies (IFS) has predicted cuts of around 16.3% to higher education and law and order budgets between 2011 and 2014, if the major political parties uphold their commitment to protect expenditure on health, schools, defence and international aid beyond 2010. Senior Whitehall sources told The MJ the possible cuts facing some departments were so severe that embryonic plans were being drawn up to increase some taxes – including VAT – beyond the general election. Political leaders have steadfastly avoided talk of tax rises in the run-up to the general election, which must be held by June. But Labour ministers and senior Conservatives are increasingly aware that the UK's precarious financial position – the fiscal deficit will reach 11.9% of GDP next year – could force them to seek new revenues to minimise budget cuts. A source said: ‘One option would be to raise VAT beyond the old rate of 17.5% – perhaps as high as 20%. Senior civil servants regularly update ministers with possible tax scenarios, increases and decreases, based on the state of public finances. ‘But it must be remembered that any talk of tax increases [within Whitehall] is merely the realm of policy options. Politicians must first desire and approve tax increases.' The Local Government Association said it was preparing councils to manage quality services within the tight spending environment. A spokesman said: ‘Given the state of the public finances, it's implicit the next few years will mean very tight settlements. The real debate is around how we organise services to make them more effective within these tight constraints.' Both Labour and the Conservatives want to reduce Britain's debt to 1.3% of GDP by 2018, meaning Britain must allocate large swathes of tax revenues into debt repayments. Carl Emmerson, IFS deputy director, said: ‘It could be eight years of pain. Unfortunately, that is the kind of choice we are looking at. It will be very difficult for public services. It is the tightest three-year period since 1977, when the International Monetary Fund was involved in setting spending plans.'
