In its response to the Chancellor’s Spring Statement, the Institute for Fiscal Studies (IFS) has suggested that tax increases amounting to £30 billion per year will be needed in order to cut the UK’s deficit.
To avoid spending falling as a fraction of national income beyond 2019/20, Chancellor Philip Hammond needs to find an extra £14 billion per year by 2022/23, the IFS said. It also stated that Mr Hammond would require an additional £18 billion of tax increases or spending cuts by the mid-2020s to eliminate the deficit.
The think tank said that ‘dismal’ growth in productivity and earnings is the ‘new normal’, alongside ‘dismal economic growth’.
In his Spring Statement speech, the Chancellor stated that the UK economy has reached a ‘turning point’ in the nation’s recovery from the financial crash of 2008.
The Office of Budget Responsibility (OBR) forecasts that the UK economy will grow at a faster pace than previously anticipated, with GDP growth reaching 1.5% in 2018.
However, in its report, the IFS said that the UK has had the ‘worst decade of growth since at least the last war’, and suggested that growth projections for the next few years are ‘subdued’.
Commenting on the matter, Paul Johnson, Director of the IFS, said: ‘The big specific challenge facing the Chancellor . . . remains over how to balance growing demands for spending increases against his desire to balance the books in the mid-2020s.’
Responding to the IFS, a Treasury spokesperson said: ‘Our balanced approach has reduced the deficit while also cutting taxes for over 30 million people and investing in our vital public services.’