Think Tank Warns Against Tax Cuts and Spending Increases Ahead of Election

The Institute for Fiscal Studies (IFS) has issued a warning against tax cuts or spending increases before an election, stating that the UK is currently facing a “horrible fiscal bind.” The influential think tank cautions that pre-election tax cuts could prove to be “unsustainable” and lead to a protracted recession, as the country’s tax burden continues to rise significantly.

One key factor contributing to the rise in tax burden is the Prime Minister’s decision to freeze tax thresholds for six years. According to the IFS, this move will effectively result in a tax rise worth £52 billion per year by 2028, as it pushes 4.5 million more people into higher income tax thresholds. The original forecast of £8 billion per year for revenue raised in 2026 has also been surpassed due to high rates of inflation since the policy was announced.

The IFS emphasizes that the current economic conditions, characterized by poor growth and high spending on debt interest, coupled with long-term pressures on public finances, contribute to the national debt remaining close to 100% of national income. This leaves little room for tax cuts or spending increases, even with tight spending settlements and further tax rises in the pipeline.

The think tank also highlights the potential consequences of rising interest rates. The cost of government borrowing is expected to increase significantly, which will further contribute to higher levels of borrowing. Additionally, the Green Budget predicts slow economic growth or even a shallow recession in the coming year. These challenges compound the existing pressures on public finances, such as spending on social care and the NHS. The recently announced NHS workforce plan alone could cost £50 billion a year in the long term, according to the IFS.

The Chancellor, Jeremy Hunt, acknowledges the need for prudence in managing public finances and the importance of being prepared for volatility and shocks. However, he faces pressure from within his own party, as well as from the opposition, with calls for more investment in the economy. Labour, for example, plans to spend £20 billion more by the end of the next Parliament if they win the next election.

In conclusion, the IFS warns against tax cuts or spending increases before an election, citing the country’s “horrible fiscal bind.” With high levels of tax burden, poor growth, and significant long-term pressures on public finances, the think tank advises against unsustainable measures that could lead to a protracted recession. The official forecasts and plans for the UK’s public finances will be released next month alongside the Autumn Statement.