The government would have to raise taxes by £30bn a year to keep government spending level while also hitting the chancellor's targets, according to the influential Institute for Fiscal Studies (IFS).
Chancellor Philip Hammond yesterday struck an optimistic tone in the first Spring Statement, a pared-back update on the economic forecasts created by the Office for Budget Responsibility (OBR),which reported slightly lower borrowing forecasts than it did in November.
However, Paul Johnson, director of the IFS, said Hammond's “Tiggerish” tone of bouncy confidence was misplaced.
“Growth prospects remain depressed... and given the uncertainty of Brexit there remains plenty of risk on the downside,” Johnson said this morning.
The OBR said UK economic growth will not rise above 1.5 per cent per year for the whole of the five-year forecast period, well below the two per cent annual growth expected before the financial crisis took hold a decade ago.
“Nothing much changed” in the Spring Statement, but the challenges for Hammond to achieve his goal of balancing the budget by the mid-2020s are large, he added.
IFS analysis shows that keeping spending flat in proportion to GDP while also cutting the deficit between spending and borrowing to zero – as promised at successive Budgets by Hammond and his predecessor, George Osborne, will require taxes to rise by £30bn.
Additional demographic pressures could also add another £11bn per year to spending to keep the quality of already stretched social care and health services at a similar level, the IFS said.