Tax burden to hit worst level for three decades

HMRC will take 37% of national income – and we could face years more austerity

FAMILIES and businesses face the heaviest tax burden for more than 30 years as austerity extends into the next decade, experts warned yesterday.

The Institute for Fiscal Studies said tax revenues will reach 37 per cent of national income in 2019-20 – the highest level since 1986-87 when Margaret Thatcher was in power.

But Britain will still be running a deficit of £21.9billion at that time as the Government spends even more on public services, welfare and other projects than it earns in tax. Describing the outlook as ‘awful’, IFS director Paul Johnson said: ‘Another parliament of austerity is the sad prospect.’

The bleak prognosis undermines hopes of tax cuts or spending giveaways in next month’s Budget. It also makes clear the huge challenge ministers face in getting Britain back into the black.

Chancellor Philip Hammond has pledged to balance the books ‘as early as possible in the next Parliament’.

The IFS expects the age of austerity to extend well into the next decade but it said a surplus – which would be the first since 2000-01 – was unlikely before 2024-25.

‘I wouldn’t put a lot of money on achieving that,’ said Mr Johnson. ‘It will be very difficult to get there.’

The comments came as the IFS published its annual Green Budget, an independent analysis of the state of the economy and the public finances ahead of the Chancellor’s Budget next month.

It showed borrowing this year of £68.2billion will be higher than in all but 13 of the 60 years before the financial crisis struck in 2008 and the fourth highest of the world’s 28 advanced economies. The national debt is at its highest level as a share of national income since 1965-66 and higher than that faced by all but five other advanced economies.

This is despite a string of painful tax rises and ‘by far the longest and biggest fall in public service spending on record’, the IFS said.

The report added: ‘After six years of “austerity” the deficit this year will still be higher than it was 80 per cent of the time in the 60 years before the financial crisis while debt is now at its highest level as a proportion of national income since 1965-66. And there is probably more uncertainty now over the future prospects than at any point in the last 60 years.’

The IFS warned that the UK faces ‘relatively disappointing’ economic growth rates in the coming years – making it even harder to balance the books. Oxford Economics, which compiles the economic forecasts for the IFS in the Green Budget, has pencilled in growth of just 1.6 per cent this year and 1.3 per cent next year.

Andrew Goodwin, one of its economists, said: ‘The economy is proving to be far more resilient than many economists had feared after the vote to leave the EU.

‘However, we expect it to endure a softer patch over the next few years. Of late, growth has been heavily reliant on the consumer, but this looks unsustainable given that the sharp depreciation of the pound is likely to result in a period of much higher inflation, squeezing household spending power.’

He warned that the economy would be 3 per cent smaller in 2030 than it would have been had Britain voted to stay in the EU.

Mark Littlewood, director general of the Institute of Economic Affairs, said: ‘This study points to a serious problem. For all the talk of austerity and killing off the budget deficit, the Government has made pre-

‘Precious little progress’

cious little progress. The problem is not that we tax too little but spend too much.’

A Treasury spokesman said: ‘The Government is committed to repairing the public finances. That has required some difficult decisions on spending, but we are determined to deliver efficient public services which provide maximum value for every pound of taxpayers’ money.’

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