The Institute of Economic Affairs (IEA), founded in 1955 to promote the free market, has warned both major political parties that they are underestimating the level of cuts needed if they are not going to raise taxes substantially.

The report, “Cutting public spending by £167bn: A modest but necessary aim is claimed to clearly set out the scale of the problem that the UK is facing.

In the report the IEA is calling for a complete re-think of public spending policy. What they want is a huge reduction in public spending that dwarfs that already announced by either the Tories or Labour.

They are talking of over £167 billion by 2014-2015 instead of the Labour £57 billion or the Tory £65 billion.

The IEA are going to be put forward detailed proposals for reforms in the coming months. This would include large cuts in benefits, education and health spending, which they say could be achieved without losing the bulk of the services.

The Institute was seen to be closely aligned with Margaret Thatcher and her massive overhaul of the whole UK economy in the 1980s. So this report will come as bit of a blow to Cameron, especially as he has tried to distance himself from Thatcher in order to be seen as his own man.

The IEA's stated goal is to explain free-market ideas to the public, including politicians, students, journalists, businessmen, academics and anyone interested in public policy.

The Director General of the Institute of Economic Affairs, Mark Littlewood, said:

In the lead up to the political parties launching their manifestos this finding should be a massive wake up call.”

“So far we have heard precious little from any party about the need to make substantial cuts. However, if they aren’t intending to cut public spending dramatically they must be planning on raising taxes. Perhaps unsurprisingly we are yet to hear this acknowledgement from any politicians.”

“The current arguments about whether or not to raise National Insurance by a fraction are grossly inadequate. Cuts must be made far in excess of ‘efficiency savings’ or the British public may be sure their taxes will rise substantially to plug the gap. Unless serious action is taken it is possible that the next government could end up being the highest tax rising government in Britain’s history.

If they are anything like me, then most people must feel that large cuts are needed and that the main parties are too frightened of telling us what is needed until we are forced to accept their five years of medicine.

But none of the parties stands out with any real plans to address these issues. When standing back and looking at the economy as a whole, each one is talking about some minor tinkering at the edges.

The state is now so large (over 50% of GDP) that any cuts are going to adversely affect a lot of voters. That is why no-one is talking about the cuts that are needed before they are voted in.

But without a clear sense of direction how can they possibly claim to have a mandate to do anything other than tinker at the edges if they do get in. Any party that gets in on the back of these weak proposals but then tries to go much further may rightfully find themselves on the receiving end of some civil unrest.

Comment Here!