Tax Hikes Likely in the Next Five Years, Warns IFS

The UK’s primary political parties have failed to address critical issues surrounding public finances in their manifestos, and it would be a “considerable surprise” if taxes are not raised within the next five years, according to a leading think tank.

The Institute for Fiscal Studies (IFS) has accused both Labour and the Conservatives of a “conspiracy of silence,” neglecting the “painful choices” necessary for economic stability.

The IFS highlighted the UK’s highest debt level in over 60 years, near-record high taxes, and increased public spending, all while public services are visibly struggling. Despite significant spending on debt interest and rising welfare costs, demands on the health system due to an ageing population and increased defence funding are expected to continue.

IFS director Paul Johnson criticised the main parties for ignoring these challenges in their manifestos, stating that substantial decisions regarding the size and scope of government will inevitably lead to either higher taxes or diminished public services. Johnson described the situation as a “trilemma” for the next government, which must choose between raising taxes, cutting spending, or borrowing more and allowing debt to increase.

The IFS noted that both Labour and the Conservatives have ruled out increases to income tax, National Insurance, and VAT, but Johnson expressed scepticism that no other taxes would be raised. He also criticised the lack of transparency regarding plans to maintain frozen income tax thresholds for an additional three years, a measure expected to generate £10 billion annually.

Prime Minister Rishi Sunak responded by asserting that the Conservative manifesto is fully costed and capable of delivering tax cuts at various life stages, primarily funded by curbing the growth of the welfare budget. Labour leader Sir Keir Starmer emphasised the party’s plans for economic growth, arguing that the UK economy has stagnated for 14 years. The Liberal Democrats defended their manifesto as fully costed, aiming to invest in public services and the NHS by ensuring that big banks and billionaires pay their fair share.

The IFS also questioned the feasibility of raising £5 billion through measures against tax evasion and avoidance, noting that most shortfalls in HMRC collections stem from the self-employed and small businesses rather than large conglomerates.

Additionally, the IFS examined the manifestos of the Green Party and Reform. It pointed out that the Green Party’s ambitious spending plans would rely on significant tax increases and £80 billion in additional borrowing. Reform’s proposals include £90 billion in tax cuts and £50 billion in increased spending, funded by an unspecified £150 billion package of measures.

Paul Johnson criticised these smaller parties for suggesting radical but unrealistic policies, which he argued, undermine serious political debate. The Green Party refuted the IFS’s claims, advocating for a tax system akin to those in European countries where higher taxes support robust public services and a more interventionist government role in the economy.

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Tax Hikes Likely in the Next Five Years, Warns IFS