The next government could struggle to fund public services because of the biggest debt challenge since the 1950s, according to a respected thinktank.
Whichever party wins the next election may be unable to fund key services if politicians are not transparent about the trade-offs they face, the Institute for Fiscal Studies (IFS) says in a new report.
Higher borrowing costs, as a result of increased interest rates, as well as low economic growth and both the Conservatives and Labour committing to reduce debt, leave the next government with little financial flexibility, the IFS adds.
It could be one of the most difficult parliaments for tax and spending since the 1950s, according to the report.
It says: “These challenges – unlike a conflict, pandemic or financial crisis – are entirely predictable.
“None can be meaningfully confronted by a government that wilfully ignores reality and the need to choose between difficult competing options.
“As tempting as it may be to engage in ‘cakeism’ – to seek to have the government’s fiscal cake and eat it – any party serious about governing after the election should resist the urge. The electorate surely deserves better than that.”
The government will have to achieve something that hasn’t been done in 20 years – tax takes and state revenue streams will have to rise to become greater than government outgoings.
This is more difficult at present with the current high debt interest payments and low growth forecasts.
Achieving debt reduction goals by raising taxes may also be politically unpalatable as the UK tax burden, the amount of taxes paid as a percentage of national income, is at a high not seen since the Second World War.
