The UK cannot afford any tax cuts or spending increases before the next general election, according to the Institute for Fiscal Studies’ (IFS) annual Green Budget report. The analysis indicated the nation was in “a horrible fiscal bind” with a slow-growing economy at a point of expensive pressures on the NHS and social care, including the potential for a long- term bill of £50bn ($64bn) following the announced NHS workforce plan. The IFS also stated that tax revenue from Prime Minister Theresa May’s decision to freeze tax thresholds for six years could effectively raise £52bn by 2028.
The IFS warned that any pre-election tax cuts could prove “unsustainable” and could mean a protracted recession as interest rates would then have to rise. It also warned that borrowing could rise significantly due to higher than forecast interest rates, exacerbating long-term pressure on public finances, even if the tightest spending settlements were put in place and accompanied by more large tax rises. IFS Director Paul Johnson pointed out that with “taxes at record levels, and government revenues forecast to exceed non-interest spending for the first time in a generation, you might expect plenty of room for either tax cuts or spending increases.” However, he added “poor growth and very high spending on debt interest over the next few years mean that the national debt is stuck at close to 100% of national income.”
The IFS report comes as Chancellor Jeremy Hunt prepares to publish his Autumn Statement, amid increasing pressure from within his own party and from the opposition. Ministers have been instructed to expect cuts of between 3% and 6% to department budgets under the government’s ongoing value for money drive. Meanwhile, the Labour party has said it will spend £20bn more over the next Parliament if elected.
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