IFS warns Osborne has little left to squeeze There will soon be little "left to squeeze" in the public sector, the Institute for Fiscal Studies has warned ministers. The influential think-tank says the government will in future have little scope for spending beyond core functions such as health, pensions, social security and education. Commenting on the Office for Budget Responsibility's prediction that state spending on public services is on track to fall to its lowest level at least since the second world war, the IFS says the figures raises questions over the realism of government plans. Services slip How scope for savings will narrow In a briefing on the Autumn Statement on Friday, Paul Johnson, director of the IFS, said that with debt interest, pensions, health, social security and education taking an ever-larger share of total public spending, "the question is: what is there left to squeeze? It is a big and deep issue. The IFS reiterated its long-standing prediction that the next government would need to consider raising tax­ation or delay further fiscal tightening because the squeeze on the public sector was so severe. Even though the government planned to run a budget surplus in 2018-19, health and school spending was protected, pensioner numbers were growing and spending on debt interest was likely to keep rising because interest rates would be on their way up. "Let's not forget the scale of the cuts in spending still to come," said Mr Johnson. He calculated that only a third of the spending cuts had yet been implemented and, after 2016, the projected rate of annual real reductions would increase from the current average of 2.3 per cent to 3.7 per cent. Making the spending calculations for the next government even harder has been George Osborne's tactic of announcing new policies - such as free school meals for infants, spending on social care and childcare - that are costed only until 2015-16. In total, the IFS reckons these commitments add about £7bn a year of additional spending pressures after 2016. The chancellor continues to make specific promises on spending in­creases while stating that he will keep total spending at the same level. He can't keep doing that," added Mr Johnson. With the tax increases implemented early in the deficit reduction programme, the IFS thinks the government is now almost half-way through the austerity drive, but within the overall tight public finances, the IFS says he has now found more than £6bn a year in tax cuts for motorists in the form of cancelled increases in petrol duties. By abolishing planned increases year after year, the government now has the lowest real level of fuel duty since 1996, the IFS says. But even such a big tax cut for many families has not had much effect on living standards. Mr Osborne and Ed Balls, shadow chancellor, have been using different statistics to paint very different pictures about what has been happening to living standards since the recession. Mr Osborne has said "real household disposable income is rising," a claim based on data from the national accounts. This particular measure did rise 0.9 per cent last year, but is forecast to fall slightly this year. More importantly, the IFS says the data set that Mr Osborne has been using is a poor yardstick for living standards. It includes the income of universities and charities as well as households and its construction is opaque. "It tells us something about household incomes, but it should certainly not be used in isolation to measure how they are changing," said Mr Johnson. Meanwhile, Mr Balls has said people are £1,600 worse off since the election, a claim based on the fall in mean gross wages over that time, adjusted for inflation. These data are also problematic, since they ignore people who do not work, and measure income before tax and benefits. However, the IFS says Mr Balls" number - which represents a 6 per cent fall in wages between spring 2010 and autumn 2013 - is fairly consistent with the findings of a reliable living standards survey, even though that survey only covers the period up to 2011-12. "[Mr Balls" figure] isn't giving a misleading impression of the changes in living standards that have taken place since the crisis," said David Phillips of the IFS. Living standards were cushioned in the recession by a VAT cut and other factors, but started to fall in 2010 as a delayed reaction to the crisis. The IFS says that while the general standard of living should start to grow, "it will surely still be below its 2010 level by the time we get to the [2015] election."