Institute for Fiscal Studies [IFS] director Paul Johnson has said that chancellor Rishi Sunak must raise taxes in the March 11 Budget to avoid having to change government rules on borrowing and undermining fiscal targets.
Sunak is tied into Conservative pledges to increase spending on the NHS and schools, while also taking on predecessor Sajid Javid’s aims to bring the budget into balance by the year 2022.
Although the Conservative election manifesto stated that tax, national insurance and VAT would not go up, the IFS believes that the government cannot hit its fiscal targets without doing so, unless borrowing rules are altered.
However, the IFS says that tinkering with such rules would undermine those targets.
Johnson called on Sunak to "recognise that more spending must require more tax", while acknowledging that the new chancellor is "hemmed in" by the targets and an increasing deficit.
Johnson said: “They [the government] will allow him to increase investment spending, which will be welcome if well targeted. But they will not allow substantial increases in current spending, or tax cuts, to be funded by more borrowing.
"We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas.
"Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax."
Under existing policy, the IFS forecasts that borrowing in 2021 could reach £63 billion, £23 billion in excess of the most recent official forecast, which already threatens the fiscal targets Javid had set as chancellor.
With government commitments to increase investment spending then factored in, the IFS says that even balancing the current budget would not result in underlying debt coming down over the course of Boris Johnson’s premiership.
The IFS has suggested removing the freeze on fuel duty and ending capital gains tax relief for entrepreneurs as other means of generating spending resources, but such moves are likely to face stiff opposition from Conservative MPs.
