IFS urges Chancellor to raise taxes to fund excess budget spending

The Institute of Fiscal Studies said there needs to be a tax hike if the Chancellor wants to go ahead with excessive budget spending or he could risk breaking borrowing rules.

Chancellor Rishi Sunak faces a tough choice at next month’s budget between raising taxes, entrenching austerity or abandoning Tory manifesto promises on government borrowing.

The government is set to increase borrowing by £63bn next year which is £23bn more than the most recent official forecasts.

According to the think-tank, the Tories would probably break their election pledge to balance day-to-day government spending with tax income by the middle of the current parliament.

The IFS warned: “It is not clear that the manifesto pledge to target current budget balance three years out would be met even under current policy.”

The Chancellor could either raise taxes to fund the spending or continue with the intense pressure of austerity.

Returning departmental spending to 2010 levels, after adjusting for inflation and excluding the NHS, which had been protected, would require an additional £54bn funding settlement, the researchers added.

Paul Johnson, director at the IFS said: “We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas. Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax.”