Labour will be forced to raise taxes even higher to meet current public spending levels if it wins the next general election, experts have warned. Analysis from the Institute for Fiscal Studies (IFS) shows public debt will be “even more difficult to sustain” with current levels of spending and revenues in the future.
Britain’s per-capita growth outperformed the average of other G7 countries between 2001 and 2019 despite the UK being hit harder by the 2008 financial crisis, but the country is now forecast to have the seventh-smallest cumulative growth among 37 similar countries in the 10 years to 2029, according to the IFS.
It says that with low growth and the era of very low interest rates appearing to have reached an end, much tighter fiscal policy is needed to get debt falling.
The IFS points to IMF forecasting which shows UK debt continuing to grow rather than stabilising or even falling. General government net debt is forecast to keep rising and to be just shy of 100 percent of national income by 2029, one IMF forecast shows.
According to the International Monetary Fund, Britain will see growth rising from 0.1 percent last year to 0.5 percent in 2024 and 1.5 percent in 2025.
The IFS said whichever party wins the next general election, the Government will have to choose between cuts to public services or increasing taxes to maintain current spending.
Martin Mikloš, Research Economist at the IFS, said: “Countries can and do make very different choices about the size of their state – but choosing a higher level of spending without a commensurately higher level of taxation is not costless and is unlikely to be sustainable in the long term.”
Mubin Haq, Chief Executive at abrdn Financial Fairness Trust, said the UK finds itself in a fiscal conundrum. He added: “Government spending has increased to levels similar to other advanced economies, but whilst tax levels have also risen, they remain below our peers.
“We want the public provision the Germans and Dutch enjoy, but we are hesitant about similar tax levels. We ultimately need to tax more if we want to spend more on public services and to ensure debt does not continue to grow.
“That’s a key challenge for whoever forms the next Government and will require more than tinkering at the edges.”
Meanwhile, at PMQs on Wednesday Labour leader Sir Keir Starmer and Prime Minister Rishi Sunak clashed over the economy.
Sir Keir urged the PM to agree with him that it was the Tories’ unfunded tax cuts which crashed the economy and left millions paying more on their mortgages under former prime minister Liz Truss’s administration.
The Prime Minister replied: “Everyone knows that two years ago I wasn’t afraid to repeatedly warn about what her economic policies would lead to, even if it wasn’t what people wanted to hear at the time. I was right then but I am also right now when I say that his economic policies would be a disaster for Britain.”
Labour is under mounting pressure to explain how it plans to fund its spending plans after Chancellor Jeremy Hunt stole some of the party’s ideas.
In the Spring Budget, Mr Hunt changed the non-domiciled tax regime to raise billions to fund tax cuts. But the move left Shadow Chancellor Rachel Reeves with a £2billion hole to fill. She has vowed to plug it through boosting HMRC collections, raising £5bn by the end of the next parliament.
