Chancellor Rishi Sunak is unlikely to be able to deliver the huge spending growth he promised in his 2020 Budget given that his pledges were not supported by tax increases, Britain’s top fiscal think tank has said.
Sunak yesterday unveiled the biggest Budget since 1992 as he seeks to tackle the fallout from coronavirus and address the UK’s regional divides.
He said day-to-day spending will enjoy “an average growth rate in real terms of 2.8 per cent – twice as fast as the economy”.
But the Institute for Fiscal Studies (IFS)’s director Paul Johnson today said such a spending increase “is obviously not sustainable for any prolonged length of time”.
Sunak’s plans will lead to a huge increase in borrowing, the UK’s budget watchdog said yesterday, adding £125bn to public sector net debt by 2024/25.
This means the UK will be “more vulnerable to changes in interest rates, inflation and growth”, according to Johnson.
The IFS today said “this was a tax-raising budget overall, to the tune of just over £7bn a year”.
But it added the tax increase “looks piecemeal and it is not clear they are part of any long term thought through strategy”.
The IFS welcomed the chancellor’s plan to review the fiscal framework in order to make sure it is well-suited to an ultra low interest rate environment.
Yet Johnson added: “It doesn’t matter how hard you review it, though, the iron laws of fiscal arithmetic will assert themselves.
“The only way that a change in the fiscal rules can help justify more spending without tax rises is if the chancellor is happy to see underlying debt rise more quickly.”