Finances a ‘dark cloud’ that hangs over the election campaign, says IFS

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• Author, Dharshini David
• Role, Chief Economics Correspondent, BBC News

• 59 minutes ago

A leading think tank has issued a stark warning about the financial challenges awaiting the next government.

The Institute of Fiscal Studies (IFS) states that the state of public finances hangs over the electoral campaign “like a dark cloud”.

He warns that more tax increases or cuts to public services could be on the horizon.

It calls for an “open and robust” discussion about how all parties will address these issues.

Both Labor and the Conservatives have committed to reducing debt as a percentage of national income. All major parties would likely have a similar form of self-imposed rules in order to keep government borrowing costs in financial markets low.

But the independent IFS says high interest payments on existing debt and expected low economic growth could make future debt reduction more difficult to achieve, whoever is in government, than in any Parliament since at least the 1950s, without additional measures.

To comply with existing rules, the current chancellor had already outlined what could represent potential cuts in the funding of some public services – such as justice or higher education – of more than 10% in the coming years, once population growth is taken into account. and inflation. .

Taxes are also on track to absorb a greater share of the country’s income, rising from 36.5% in the current fiscal year to 37.1% in 2028–29, particularly as the thresholds at which different tax rates apply on income are frozen, instead of rising with inflation, as they have traditionally done.

As such, the IFS states that, barring a drastic improvement in growth, the next government could face three big choices: proceed with reducing spending on services, increase taxes further or increase annual debt, which could prevent the decline of the total debt.

‘Difficult choices ahead’

Paul Johnson, director of the IFS, said: “Money is tight. We could have miraculous luck with growth and escape having to make these difficult choices.

“Just because thousands of English and Scottish football fans are crossing their fingers and hoping for the best this summer doesn’t mean the next cabinet should do the same.”

He added that the next government should not wait until it takes office to “open the books”, adding that they are published and available for anyone to consult.

“We should use them as a basis for an open and robust discussion during the election campaign,” he added.

The IFS warning echoes one it made after the Budget in March, when it spoke of a “conspiracy of silence” that meant the main parties were not recognizing potential challenges, or explaining how they would address them.

All parties will present policies that they believe will improve the situation for voters in the coming weeks.

But with most economists reaching a similar conclusion to the IFS, such commitments will be made in a context of limited public finances – which could mean difficult choices ahead that could ultimately impact voters’ fortunes.

Responding to the IFS findings, Darren Jones, shadow chief secretary to the Treasury, said Labor is under no illusions about the scale of the challenge it could face.

“The country will only see the full scope of the challenge if we win the elections. We promise to deliver an immediate injection of cash into our public services and then we will start working to transform the country,” he said.

The BBC has also approached the Conservatives for comment.

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