By Charles Maggs Follow @charlesmaggs
The coalition will have to complete its austerity drive with 97% spending cuts and just three per cent tax rises in the two years after 2015, a think-tank has warned.
The Institute for Public Policy Research (IPPR) warned that the deteriorating economy means state spending will fall as a share of GDP to 39% by 2016/17, eight per cent lower than at its height in 2007 but still higher than in 2000.
If the Conservative policy of ring fencing NHS and international development spending continues past 2015 this will result in even bigger cuts in other departments than those seen in the 2010 comprehensive spending review, IPPR said. As much as £10 billion could come from the welfare budget alone.
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The report suggests that cuts should be more evenly spread across government departments and that more should be raised from tax increases.
It said: "Rather than increasing tax revenues to pay for rising demand for public spending in key areas, politicians have typically sought to switch spending from other areas and to keep total spending roughly stable.
"Popular services like the NHS are usually protected while capital investment and defence budgets are squeezed, with little debate about the long-run economic impacts."
The report suggests that £20 billion should be raised by tax rises in 2014/15 and 2016/17, around a third of the deficit for those years.
If a £10 billion cut in welfare spending is pushed through pressure on the education and defence budgets, which have already seen substantial real-term spending cuts, could be relieved.
Such a move might force the Tories to abandon the ringfencing of NHS and international aid spending seen in their 2010 manifesto, however.
It is also unclear how work and pensions secretary Iain Duncan-Smith will react to the figures given his resistance to further cuts in the welfare budget and David Cameron's attempt to move him to justice secretary in the recent cabinet reshuffle.