The UK economy is currently facing some of its toughest challenges since the 1950s, leading think tank, the Institute for Fiscal Studies (IFS) has warned that campaign promises of tax cuts may have to be reversed. The IFS report suggests politicians must acknowledge tough economic trade-offs, adding that tax cuts today add to the risk of future tax raises or spending cuts. The Treasury believes the economy is turning a corner, however, the IFS warns of the difficult job the next government faces trying to reduce the amount of debt the UK has compared to its economic output, which is currently at levels seen in the 1960s.
IFS director, Paul Johnson believes, “if political parties looking to form the next government are promising tax cuts, let’s hear where the spending cuts will fall.” He believes it is easy to announce immediate tax cuts without stipulating where the UK government will cut spending or increase future taxes. ***
Last month, government borrowing was lower than expected, and a fall in the rate of inflation led to a sharp drop in interest payments on debt. However, combined with sluggish growth, interest payments on national debt make it tricky to reduce the debt-to-GDP ratio which will make reducing national debt particularly hard. The IFS believes there will be limited scope to cut taxes or increase spending by a significant amount.
Chancellor, Jeremy Hunt hinted last week at the annual World Economic Forum Meeting that he aimed to cut taxes in the upcoming spring budget. In November last year, Hunt announced a £10bn National Insurance cut and boost for benefits, stating that the Conservatives have already delivered significant tax cuts in an attempt to boost the UK’s lacklustre economy. Meanwhile, the overall tax burden is still expected to be at record highs; the Labour Party plans to spend £28bn per year on green energy projects.
The run-up to the general election will require politicians to be honest about the trade-offs that are needed for potential tax cuts and increased spending, particularly since both major parties have prioritised cutting national debt. With weak economic growth and a cost-of-living crisis, the IFS report highlights the ‘miserable’ prospects for any winning government. The Treasury has stated that halving inflation and ensuring debt falls as a share of the economy means that they are beginning to turn a corner
Read the full article from The BBC here: Read More