George Osborne's reputation as a would-be Tory chancellor was unravelling tonight after his claim that he would save £13bn by raising the state pension age was challenged by the respected thinktank that provided the basis for his figures.
The National Institute of Economic and Social Research (NIESR) said the shadow chancellor's proposed saving, outlined at the Conservative party conference this week, would take five years longer than estimated and fall £3bn short.
NIESR said Osborne's team had made a mistake in their calculations, misreading a paper written by the thinktank earlier this year. Osborne's aides originally based their calculations on a NIESR document in the House of Commons library. After his speech the thinktank sought clarification of his assumptions. It has recalculated the figures and will present them at a conference on Monday.
Osborne said he wanted to save £13bn by raising the state pension age from 65 to 66 from 2016 as part of a range of measures designed to cut the ballooning public debt. He singled out older workers and public sector workers as chief targets for cuts. The move angered pensioners' groups, which said many people were out of work when they were 64.
Much of the gains from increasing the state pension age would come from the increased purchasing power of the over-65s. Only 20% of the savings come from restricting pension payments.
Opposition politicians said the miscalculation cast doubt on Osborne's fitness to be chancellor.
Writing in the Guardian today, David Blanchflower, respected economist and former member of the Bank of England's monetary policy committee, also joined the criticism of the Tories' financial plans, saying they had the potential to push the UK economy into a "death spiral".
"We are in the midst of the worst recession most people alive have ever experienced, or will probably ever experience," Blanchflower writes. "Lesson one in a deep recession is you don't cut public spending until you are into the boom phase. The consequence of cutting too soon is to drive the economy into a depression. The Tory economic proposals have the potential to push the British economy into a death spiral of decline."
The Liberal Democrat Treasury spokesman, Lord Oakeshott, said: "This saga of incompetence shoots to pieces his claims to be a responsible chancellor."
Alistair Darling said: "That George Osborne has overclaimed comes as no surprise at all. He has shown a shocking lack of judgment through this crisis. His erroneous claims on what he would raise from his pension cuts are just another example."
In today's Daily Telegraph, the prime minister, Gordon Brown, says the UK economy is set to recover faster than expected. "We've said that the economy will grow by 1.5% next year and more people are moving towards our position."
A spokesman for Osborne said the £13bn savings included inflationary rises between 2009 and 2020. He said that the difference between £10bn and £13bn was therefore "presentational" and not significant to the debate.
"The NIESR agrees that when all the pension reforms are in place the savings amount to two thirds of 1% of GDP. That is what we said at the time. We were clear that the £13bn figure was based on a projection of the cost of money in 2020. We accept the gain in today's money is only £10bn," he said.
Oakeshott said the idea that a £3bn difference in figures was a presentational matter was "laughable and misleading".
A NIESR spokesman said it would not estimate how much the savings would be worth in 10 years. "There is no way of knowing how much it will save except in today's money," he said. "The general principle behind raising the retiring age to 66 is sound. Indeed there is a good case for a rise earlier than the Conservatives are proposing. As we understand it, the full benefits of the package that the Conservatives are proposing will not be realised until after 2020. In 2016 it will only raise £4bn, rising to £10bn in 2023, with the full effect coming in 14 years' time."
However, the shadow Treasury minister, Greg Hands, later added: "This story is complete nonsense. From the moment the policy was launched we were clear that the savings would be realised once the men's and women's pension age reach 66."
He said he believed the Guardian had used GDP in 2009 to calculate the effects of a policy that would not take effect until 2016 at the earliest. "To suggest our estimates of costs fall short or would cause a 'death spiral' is wrong and offensive."
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