Tax increases inevitable if economy shrinks, says IFS

The Institute for Fiscal Studies has warned Rachel Reeves that any more bad economic news will "almost certainly" spark fresh tax rises.

- DAVID MADDOX KATE DEVLIN

Council tax will already have to rise at its fastest rate in a generation, the IFS said, as it added to concerns the chancellor has left herself with little room for manoeuvre a day after she unveiled her spending plans for the rest of the parliament.

The warning came as the government was hit with the news that the economy had shrunk by 0.3 per cent, sparking fears of a potential recession. Ms Reeves came into office with a pledge to grow the economy, but it has been sluggish at best in her first year.

Paul Johnson, director of the IFS, said council tax is set to rise at its fastest rate for 20 years as local government tries to close its funding gaps with annual increases of up to 5 per cent. More councils could also reach a “tipping point” unless demands on their resources fall, he warned.