Tax Hikes Seem Unavoidable Over the Next Five Years, Warns IFS

Tax Hikes Seem Unavoidable Over the Next Five Years, Warns IFS

Tax Hikes Seem Unavoidable Over the Next Five Years, Warns IFS

The UK's leading political parties have sidestepped addressing critical issues concerning public finances in their manifestos, leading to an inevitable rise in taxes over the next five years, according to a leading think tank.

The Institute for Fiscal Studies (IFS) has criticized Labour and the Conservatives for engaging in a "conspiracy of silence," failing to confront the "painful choices" necessary for the country's fiscal health.

The IFS report highlights that the UK is grappling with its highest debt level in more than six decades. Taxes have surged to record levels, and government spending has ballooned, yet public services are "visibly struggling." The government is burdened with substantial interest payments on its debts, and welfare expenditures have soared. At the same time, spending on healthcare is projected to increase due to an ageing population, and defense funding will need to rise amidst global tensions. Compounding these challenges, economic growth remains sluggish.

Paul Johnson, director of the IFS, stated, "These raw facts are largely ignored by the two main parties in their manifestos." He emphasized that "huge decisions over the size and shape of the state will need to be taken," which will likely result in either higher taxes or diminished public services.

The IFS has identified a "trilemma" facing the next government, regardless of who wins the upcoming election. The options are stark: raise taxes beyond what is outlined in current manifestos, implement cuts to certain spending areas, or increase borrowing and allow debt to rise for a more extended period. Johnson remarked, "What will they choose? The manifestos have left us guessing."

Both Labour and the Conservative Party have been criticized for ruling out increases to income tax, National Insurance, and VAT. Johnson warned, "Despite a damaging rush to rule out increases in all sorts of tax rates, it will be a considerable surprise if no other taxes are increased over the next five years."

Labour leader Sir Keir Starmer responded to the IFS analysis, stating, "The economy has flatlined for 14 years, and that is exactly what we are wanting to change. That's why we have set out plans for growth in our manifesto."

The IFS also condemned the lack of transparency regarding plans to keep income tax thresholds frozen for an additional three years, a measure expected to raise £10 billion annually. Both the Tories, Labour, and the Liberal Democrats support maintaining this policy. Johnson pointed out that while the parties talk about raising £5 billion by cracking down on tax evasion and avoidance, achieving this target is uncertain. He noted that, according to official estimates, most of the tax shortfall collected by HMRC comes not from large corporations but from the self-employed and small businesses.

The IFS's stark analysis paints a challenging picture for the next government. With public services under strain and significant financial obligations looming, the incoming administration will face tough decisions. The think tank's report suggests that without addressing these fiscal realities, the UK will continue to struggle with high debt and inadequate public services.

The political landscape ahead of the election is fraught with uncertainty. The manifestos of the main parties provide little clarity on how they plan to navigate the economic challenges. The IFS calls for greater honesty and transparency from political leaders about the tough choices that lie ahead.

The IFS's report underscores the pressing need for a comprehensive and transparent approach to managing the UK's public finances. With taxes likely to rise and public services in need of reform, the next government will need to make difficult decisions to ensure the country's economic stability and growth. The challenge will be to balance these demands while maintaining public trust and confidence in the government's fiscal policies.

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Anas Bouargane

Business Expert

Anas is the founder of CEF Académie, a platform that provides guidance and support for those willing to study in France. He previously interned at Unissey. Anas holds a bachelor degree in economics, finance and management from the University of Toulon.

   
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