Decades of tax rises on way to pay for crisis
HOUSEHOLdS face decades of higher taxes to pay for the coronavirus pandemic, Britain’s leading economic think-tank warned yesterday.
The institute for Fiscal Studies said taxpayers would face a day of ‘reckoning’ as it estimated borrowing would hit half a trillion pounds over the next two years – roughly four times the annual NHS budget.
The staggering sum includes a record £350billion deficit this year and £150billion next year, as the cost of emergency measures to rescue the economy and deal with the pandemic blows a huge hole in the public finances.
in its report, the iFS said the Chancellor was right to be focusing on stimulating recovery and protecting jobs.
But it predicted Rishi Sunak may have to impose a ‘pretty big tax rise’ to start paying down the national debt from 2022, when the economy has had a chance to recover.
The sobering analysis was published after the Chancellor’s latest £30billion jobs stimulus, which took the cost of emergency coronavirus measures to just under £190billion.
The iFS calculated that the Government would have to raise between £35billion and £40billion a
‘Day of reckoning will come’
year in tax increases – the equivalent of 1.5 per cent of GdP.
Paul Johnson, director of the iFS, said: ‘Let’s hold in the back of our minds that a day of reckoning, in the form of higher taxes, will come eventually. This is no normal recession. it’s the deepest in history.’
He added: ‘The time to pay for this will come, but not this year and not next.’
deputy director Carl Emmerson said it was too early to predict the scale of the hikes as it depends on how quickly the economy recovers, but said ‘it could be quite a chunky tax rise’.
and he warned that ‘many’ of the Chancellor’s successors would face difficult decisions as they wrestle the public finances under control.
‘it’s going to take decades before we manage that debt down to the levels we were used to pre this crisis,’ he said.
Boris Johnson has already stressed that there will no repeat of the austerity introduced by david Cameron’s government after the last financial crisis.
and earlier this week, he pledged to stick to the Tory party’s election promise not to raise income tax, VaT or national insurance to pay for the Covid-19 pandemic. But yesterday, the Chancellor refused to rule out increasing taxes to help reduce the soaring national debt, which has already hit almost £2trillion – and is bigger than the size of the economy for the first time in almost 60 years.
He repeated his pledge to return the public finances to a ‘sustainable position over the long term’.
asked whether this would involve raising taxes, Mr Sunak told Radio 4’s Today programme: ‘i think it is too early to speculate.’
The Government currently benefits from being able to borrow at ultra-low interest rates. Mr Sunak said officials ‘must remain alert to changes’ in the cost of borrowing.
The possibility of tax rises caused alarm in the Tory back benches. Former Cabinet minister david davis said: ‘i would not worry so much about the Tory manifesto but about the economy. increasing taxes could blow up in our face – reducing economic activity and employment, and reducing the tax take.’