AUSTERITY will stretch “well into the 2020s” with public services set to experience a severe and prolonged squeeze in the coming years, according to a report published yesterday by the Institute for Fiscal Studies (IFS).

In its annual “Green Budget”, released ahead of the Chancellor’s annual fiscal statement next month, the IFS points out that on current plans and adjusted for expected inflation, public spending will be 13 per cent lower than 2010-11 levels by 2019-20.

It also warned slower economic growth following the Brexit vote will leave the UK with one of the largest black holes in public spending in the developed world, meaning the next government must find £40bn to eliminate the budget deficit in the next parliament.

“Cuts to day-to-day public-service spending are due to accelerate while the tax burden continues to rise,” said IFS director Paul Johnson.

“Even on central forecasts that is going to require extending austerity towards the mid-2020s. If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin.”

The leading tax-and-spend thinktank said downgrades in GDP growth over the next four years will strain the public finances, which are already on course to be £13bn worse off in this financial year than forecast, after weak growth in tax receipts. Highlighting the pressure on Chancellor Philip Hammond, the IFS’s annual assessment of the public finances found that Britain’s ageing population and increasing demands on the NHS will blow a large hole in the government budget over the next two parliaments.

It said: “Demographic and non-demographic pressures are projected to put upward pressure of one per cent of national income on health, social care and pension spending by 2025.

"Taking into account possible negative effects from lower growth, the government may need to enact further measures worth £40bn (in 2016-17 terms) in order to eliminate the deficit in the next parliament.”

SNP MSP Christina McKelvie said: “This report shows just how abject a failure the Tories’ austerity obsession has been – with the national debt and deficit continuing to rise, and the poorest in society bearing the brunt of callous Tory spending cuts.

“Their new plan to bring about a hard Brexit, outside the single market, will simply compound the damaging legacy of this Tory government – which is why the Scottish Government is doing all it can to protect Scotland’s interests in Europe.”

Patrick Harvie MSP, finance spokesperson for the Scottish Greens, added: “This fixation with the public-sector debt and deficit is driving their ideological addiction to austerity, harming the most vulnerable in society and worsening inequality and poverty, while the damaging Brexit agenda will further undermine the chance of building a successful, productive economy.

“With new powers over income tax and social security, Scotland must start to chart a different course, and we need Holyrood to show confidence in responding to economic events.”

The IFS report said the promised spending and slower growth would force the UK Government to implement tougher austerity, even though the Chancellor has abandoned his predecessor’s pledge for a budget surplus by 2020.

It said: “Real levels of day-to-day public-service spending have actually fallen very little overall in the last three years. The rate of reduction is set to speed up after this year, with cuts of nearly four per cent due between 2016-17 and 2019-20.

“In addition, tax is rising as a share of national income and by 2019-20 is due to reach its highest level since 1986-87.”

It said a deficit in 2016-17 of 3.5 per cent of GDP, or £68.2bn, was £12.7bn higher than that predicted by the Office for Budget Responsibility, the Treasury’s independent forecaster, in March 2016.

“This increase was not a result of a downgrade to the forecast for economic growth, but arose as a result of weak growth in tax receipts – in particular, income tax, National Insurance contributions and stamp duty land tax – and faster growth in local authority spending,” it said.

Hammond said in the Autumn Statement last year that he plans to boost public investment spending beyond pre-crisis levels as a proportion of overall public spending, with much of the extra cash to be spent on transport infrastructure.

However, many departments will need to make further savings on day-to-day spending by the end of the parliament.

The IFS said: “Public spending, especially on health, pensions and overseas aid will be higher as a share of national income than in 2007-08, while spending on schools, defence and (in particular) public order and safety will be lower.”