IFS Warns Sunak May Find Himself In A ‘Fair-Sized Hole' Despite Historic Tax Rises

Chancellor Rishi Sunak is likely to be “short of money” to spend on a number of public services despite a historic increase in taxes, the Institute for Fiscal Studies (IFS) has warned. With the release of its 2021 Green Budget, the economic think tank said that the rising costs of healthcare across the UK’s ageing population were encroaching on the level of funds available for other services, including courts, prisons and local government.

- Celine Wadhera

The report found that the 1.25 percentage point increase in national insurance contributions to pay for extra spending on health and social care, announced last month by Boris Johnson, may need to be doubled by the end of the decade in order to meet future demographic pressures.

Meanwhile, the UK’s economy is expected to be smaller by the mid-2020s than it was projected to be before the pandemic, an analysis by Citi found. Contained within the Green Budget, the analysis estimated the UK’s economy would be between 2 and 3 per cent smaller in 2024-2025 than the previous estimate, because of the effects of Brexit and Covid-19.

Christian Schulz, Citi’s director of European economics, said: “The scarring just because of the pandemic may not be as large as we thought last year. The scarring due to Brexit may actually be larger.” He added: “Brexit is casting a long shadow over the economy.”