Tax hikes of around £40bn a year will be needed to balance the books by mid-2020s, the Institute for Fiscal Studies (IFS) has said.
The respected thinktank poured scorn on Philip Hammond’s optimism in its analysis of his first Spring Statement, where it declared the need for tax rises of £30bn each year to retain public spending and balance the budget by the middle of the next decade – which the Tories promised to do.
An additional £11bn will be required to cover the health, social care and pension needs for the ageing population – taking the total to more than £40bn, IFS director Paul Johnson told a briefing in London.
It comes after Mr Hammond hinted he was preparing to kickstart spending in the Autumn Budget as he said positive economic forecasts had left him feeling “Tigger-ish”.
Delivering his assessment of the statement, Mr Johnson said the Chancellor needed to be “especially cautious about opening the spending taps” as public debt was not really due to fall under current plans.
However public services are facing “undeniable” pressures compared to recent years, he said, citing safety in prisons, the NHS and local government funding as areas under particular strain.
Mr Hammond will need to find £14bn a year to avoid a drop in spending, and he will need an extra £18bn through tax increases or spending cuts to eliminate the deficit by the mid 2020s, the IFS found.
Mr Johnson said: “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 £30bn a year.
“And that’s before additional demographic pressures which could add another £11bn 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.”
In Tuesday’s set-piece statement, Mr Hammond said there was “light at the end of the tunnel” for the UK economy, as growth forecasts were revised upwards and debt was expected to fall.
Mr Johnson said “dismal productivity growth, dismal earnings growth and dismal economic growth are not just part of the history of the last decade, they appear to be the new normal”.