Jeremy Hunt is in a ‘horrible fiscal bind’ with no room for tax cuts or spending increases ahead of the general election, economists warn.
Despite tight public spending and taxes heading to record levels, the Institute for Fiscal Studies said budget giveaways would be ‘extremely difficult to justify’.
In a report published today, the IFS said there was ‘an argument for a net tax rise’ over the medium term to satisfy the ‘appetite for public spending’.
The report analysed the challenges facing the Chancellor ahead of his Autumn Statement next month.
It said debt levels have soared as borrowing costs have gone up, while the inflation rate remains above target.
Chancellor of the Exchequer Jeremy Hunt reacts after attending an interview on the fifth day of the annual meeting of the International Monetary Fund and the World Bank, following last month’s deadly earthquake, in Marrakech, Morocco, October 13
The UK is also expected to fall into a recession in the first half of 2024, according to analysis by Citi. Economists said an ill-timed and unfunded package of pre-election tax cuts could prove unsustainable and lead to a protracted recession.
Paul Johnson, director of the IFS, said: ‘We are in a horrible fiscal bind. With taxes at record levels and government revenues forecast to exceed non-interest spending, you might expect either tax cuts or spending increases.
‘But the national debt is stuck at close to 100 per cent of national income, even with tight spending settlements and further big tax rises in the pipeline.’
Mr Hunt has played down the prospect of tax cuts in the Autumn Statement, but is under pressure from MPs and businesses to lighten the burden on taxpayers.
Paul Johnson IFS Institute for Fiscal Studies comments on budget on College Green Politicians in Westminster in March 2020
However, the IFS report did forecast that inflation would fall from 6.7 per cent in August to a little over 4 per cent by the end of the year – meaning Rishi Sunak would meet his goal of halving inflation over the course of the year.
But Huw Pill, the Bank of England’s chief economist, warned it must not ‘declare victory prematurely’ in the fight against inflation.
He said there was still ‘work to do’ to bring inflation back down to 2 per cent.
A Treasury spokesman added: ‘We must stick to our plan that we are delivering to halve inflation, which will help unlock sustainable growth, support families with the cost of living and get debt falling.’
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