£30bn of tax rises needed to balance the nation's books, IFS warn
Philip Hammond will have to hike taxes by an eye-watering £30bn over the coming years if he wants to wipe out the deficit by the middle of the next decade, experts warned today.
The Institute for Fiscal Studies said the “dismal” financial outlook unveiled in the Spring Statement yesterday had tied the Chancellor’s hands.
And in a grim warning, they said that low wages, productivity and economic growth could become "the new normal" for Britain.
The Office for Budget Responsibility yesterday unveiled slightly better than expected growth figures for next couple of years - but worse than expected figures in the early 2020s.
Despite the modest improvement in expectations compared with the Budget in November, Mr Hammond said he could use the extra cash generated to pump money into public services later this year.
He also said the country had turned a corner following the financial crash and that there was now "light at the end of the tunnel".
But the IFS said the Chancellor would still have to find an extra £14bn a year to prevent spending dipping below current levels by 2022/23 and a further £18bn if he wants to eliminate the deficit as planned.
"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," IFS boss Paul Johnson said.
He said growing pressures on the NHS and social care could add an extra £11bn on top that would have to be found through tax rises or spending cuts.
Mr Johnson said of the Spring Statement yesterday: “Relative to what we were told in the Autumn Budget, nothing of importance changed.”
And he added: “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.”
The IFS added that the projections for government borrowing and debt had been “very slightly” improved since November.
IFS economist Tom Pope said growth has been 14% lower than it was expected to be before the 2008 crash and noted that the recovery had been extremely weak by historic standards.
He added: “The last 10 years of the financial crisis and its aftermath is unprecedented in peacetime.”
Elsewhere, left-leaning thinktank the Resolution Foundation also said Mr Hammond must hope for better forecasts or hike taxes if he wants to eliminate the deficit as well as boost public service spending.
Director Torsten Bell 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.”