A further £15bn in public spending cuts above and beyond those already announced by the Government will be needed unless taxes rise further after higher-than-expected borrowing by the Conservatives, according to the respected Institute of Fiscal Studies.
The IFS said that whilst the deficit has fallen considerably since its 2009/10 peak, it is still above the UK's pre-crisis average and is in line to fall with what was implied by Labour's 2015 General Election manifesto. The Conservatives have borrowed more than the IFS expected because cuts have been lower than stated in the party's 2015 manifesto, and there has been a significant downgrade in the outlook for the UK economy, in part due to the vote to leave the European Union.
Consequently, eliminating the deficit before a May 2022 General Election "would require net tax rises and spending cuts worth a total of £15bn on top of what is already planned". Both tax revenues and spending are slightly above their pre-crisis shares of national income, driven by tax rises announced since May 2010, the IFS added. Further tax rises since May 2015 will raise a net additional £15bn, once tax cuts are taken into account.
"Investment spending is forecast to increase as a share of national income over the next five years," the IFS adds, underlining political consensus on the benefit of capital spending, but, with the Labour shadow Chancellor reportedly suggesting that VAT and national insurance should not rise, remaining political disagreement on how to pay for that spending whilst eliminating the deficit.
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