Tax rises may need to be tripled if economy performs badly, say IFS

Analysis released by the Institute for Fiscal Studies today, suggests that government borrowing will be lower than predicted.

Despite preparing for the biggest tax raising plans in a quarter-century, the IFS says the government must keep a tight rein on spending if it wishes to balance the books.

The paper said that if the economy surpasses expectations, the £28 billion package of tax rises announced in March may prove unnecessary.

However, it calculated that if the economy performs worse than expected, tax increases may need to be tripled for current government revenue to exceed current government expenditure by 2025.

Paul Johnson, director of the IFS and editor of the Green Budget, said: “Rishi Sunak, a Conservative chancellor, is presiding over an increase in the tax burden to record levels in the UK and an increase in the size of the state to levels not seen since the days of Mrs [Margaret] Thatcher.

“Yet the combined effects of ever-growing spending on the NHS and an economy smaller than projected pre-pandemic mean that he is still likely to be short of money to spend on many other public services.

“On central forecasts, there will be little or no scope to increase spending on things like local government, the justice system and further education, after a decade of sharp cuts.

“That said, he still faces huge uncertainty over the direction of the economy and hence over the state of public finances.

“He will be hoping against hope that stronger-than-expected growth in revenues over the next few years will help to dig him out of what looks like a fair-sized hole,” added Mr Johnson.

In the style of a government green paper, the IFS produces an analysis of the country’s finances in its annual “green budget”.

The chancellor’s budget is expected to be delivered on 27 October.