The Institute for Fiscal Studies (IFS) has suggested that the UK will require tax rises of £40 billion or more per year during the middle years of this decade to stop debt spiralling upwards as a result of the coronavirus (COVID-19) pandemic.
According to new research from the IFS, government borrowing this year will reach a level never before seen in the UK outside of the two world wars of the 20th century.
Under a central scenario, in four years’ time the UK economy would be 5% smaller than was anticipated in March. This would mean a £100 billion hit to public finances from lower tax revenues, even before any extra spending.
The Institute’s figures do not take into account increased spending pressures on the NHS, social care and the COVID-19 track and trace system.
‘This government has chosen to pump an additional £200 billion into the economy to support jobs, businesses and incomes this year,’ said Paul Johnson, Director of the IFS.
‘Unfortunately, none of this will be enough fully to protect the economy into the medium run. We are heading for a significantly smaller economy than expected pre-COVID, and probably higher spending too. Without action, debt – already at its highest level in more than half a century – would carry on rising. Tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade.’