Belfast Telegraph

£30bn in tax rises needed to balance UK books, think tank warns

The Institute for Fiscal Studies said growth remains among the worst in the G20.

Tax rises worth at least £30 billion a year will be required if the Government is to protect public spending and balance the books by the middle of the next decade, a respected economic think tank has said.

Chancellor Philip Hammond used his spring statement to hint he will turn on the spending tap in this autumn’s Budget after positive public finance figures pointed to “light at the end of the tunnel” following years of austerity.

The Chancellor told MPs he had shed his Eeyore image and was feeling “Tiggerish”, after the Office for Budget Responsibility (OBR) edged up growth projections for 2018 and forecast falls in Government borrowing and national debt over the coming years.

But in its analysis of the economic challenges facing the country, the Institute for Fiscal Studies painted a bleak image.

Responding to Mr Hammond’s new-found optimism, IFS chief Paul Johnson said: “Growth remains depressed, among the worst in the G20.

“And given the uncertainties around Brexit there remains plenty of risk on the downside.”

He said public debt is “not really due to fall” and Mr Hammond should be “especially cautious about opening the spending taps”.

But pressures on public services are “undeniable” with many struggling in ways they were not two or three years ago.

“Safety in prisons is being compromised. The NHS is visibly failing to cope as well as it has,” he said. “Local government… is showing the strain.”

Dismal productivity growth, dismal earning growth and dismal economic growth are not just part of the history of the last decade, they appear to be the new normal Paul Johnson

Just to avoid spending falling as a fraction of national income beyond 2019-20, Mr Hammond would need to find an additional £14 billion a year relative to current plans by 2022-23.

However, if the Chancellor wants to eliminate the deficit by the mid-2020s he would need to fund an additional £18 billion through tax increases or spending cuts by then.

“Put these two together and on current forecasts just keeping spending constant as a fraction of national income beyond 2019-20 and reaching budget balance by the mid-2020s would require tax rises of £30 billion a year,” Mr Johnson said.

“And that’s before additional demographic pressures which could add another £11 billion a year to the money the Government would need to find from somewhere in 2025 if it wants to cover the additional demands for health, pension and social care spending.”

He said the consequences of the economic crash in 2008 meant the economy was £300 billion smaller than had been forecast before the crisis – and the effects are lingering.

“Dismal productivity growth, dismal earning growth and dismal economic growth are not just part of the history of the last decade, they appear to be the new normal,” he said.

The Resolution Foundation living standards think tank also said the Chancellor will need better growth or increased taxes if he is to stick to his goal of eliminating the deficit and driving significant reductions in debt, while ending the UK’s unprecedented squeeze on public spending.

Torsten Bell, director of the Resolution Foundation, said: “With the elimination of the current deficit and debt falling next year, Britain is set to pass two major milestones on its long austerity journey since the financial crisis.

“But the end of the tunnel is still a decade away, and significant obstacles remain before the final destination is reached.

“Steering past these obstacles will require the Chancellor to make some tough choices that he avoided setting out yesterday lest he spoil the upbeat mood. Delivering significant reductions in debt while softening currently planned spending cuts to come will require either tax rises or for Britain to heed the Chancellor’s call to ‘beat the forecasts’.

“Planning for the former, while hoping for the latter might be a sensible approach for the years ahead.”

A Treasury spokesman said: “Our balanced approach has reduced the deficit while also cutting taxes for over 30 million people and investing in our vital public services.

“We are training more doctors, more schools are rated as outstanding and we are funding the second largest defence budget in Nato. Thanks to the hard work of the British people we will now see the first sustained fall in debt in 17 years.”

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