A REPORT has warned the next government it will have to cut the scope of what the state provides or raise taxes to maintain levels of departmental funding – despite Labour and the Conservatives vowing not to raise taxes.
The Institute of Fiscal Studies (IFS) report looks at how spending as a proportion of national income has changed since the 1950s and how it will change in the next government.
It said the current Government’s spending has increased by “significantly more” than under any previous post-war Conservative government.
IFS research economist Bee Boileau said whoever wins the General Election on July 4 “will have a choice”.
“They can cut the scope of what the state provides, or accept further worsening of public services which already look under strain,” she said. “Or they can raise taxes, or borrow more, in order to top up spending and maintain real-terms levels of departmental funding.
“Neither the Conservative Party nor the Labour Party has been clear about which of these options they would take. Neither has shown any ambition to cut the scope of the state.”
She continued: “Both have ruled out increases in major taxes. Both have committed to a debt target that would prevent them from borrowing more.
“But, absent of really significant improvements in growth forecasts, one of these options must be chosen. The trade-offs here cannot be solved by denying their existence.”
Labour leader Keir Starmer is set to include a pledge in the manifesto not to raise income tax, national insurance or VAT for five years, according to The Sunday Times.
The Conservatives have pledged not to increase capital gains tax, stamp duty or the number of council tax bands.
The IFS report said under the current Government, spending has grown by 4.5% of national income or £124 billion in today’s terms, with four fifths not expected before the pandemic.
It also found that health spending is likely to continue to rise as well as defence spending.
Mubin Haq, chief executive of abrdn Financial Fairness Trust which funded the report alongside the Nuffield Foundation, said there are “difficult choices to be made by whoever forms the next government”.
“This growth in the overall size of the state is despite the majority of government departments having lower real-terms funding than before austerity,” he said.
“Essential services are likely to face further cuts and pressures on them will intensify.”
