Rishi Sunak, Chancellor of the Exchequer, has been tasked with Britain’s recovery from the 18-month crisis brought about by the COVID-19 pandemic. This has meant tough decisions on the public purse, many of which have brought about debate in recent weeks. However, Mr Sunak could be facing another hurdle, a think tank has said, as costs continue to rise in a number of areas.
The IFS stated public spending was set to reach 42 percent of national income following the levy announcement. This is two percent above pre-pandemic share levels.
However, the Chancellor is also navigating the challenge of an economic slump, as figures from earlier in the year showed the economy shrunk by 10 percent in 2020.
As a result, there are concerns Mr Sunak will not have enough extra money to spend on certain “unprotected” ministerial departments when it comes to the Budget this month.
Paul Johnson, director of the IFS, said: “Rishi Sunak, a Conservative Chancellor, is presiding over an increase in the tax burden to record levels in the UK and an increase in the size of the state to levels not seen since the days of Mrs Thatcher.
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“Yet the combined effects of ever-growing spending on the NHS and an economy smaller than projected pre-pandemic mean that he is still likely to be short of money to spend on many other public services.
“On central forecasts, there will be little or no scope to increase spending on things like local government, the justice system and further education, after a decade of sharp cuts.
“That said, he still faces huge uncertainty over the direction of the economy and hence over the state of the public finances.
“He will be hoping against hope that stronger-than-expected growth in revenues over the next few years will help to dig him out of what still looks like a fair-sized hole.”
The IFS has described uncertainty around the current economic forecasts as “incredibly high”, with concerns mounting about what steps will be taken by the Chancellor next.
In a fair outcome, the billions of pounds worth of tax rise announced in the March Budget may prove unnecessary, with Mr Sunak potentially boosting the public finances elsewhere.
Fears, however, still remain about a significant tax hike if things go poorly in order to get Britain back on a fair footing.
In a recent speech to the Conservative Party conference, the Chancellor said future tax cuts would only hinge on repairing the UK’s public finances first, as a matter of urgency.
He said: “There can be no prosperous future, unless it is built on the foundation of strong public finances.
“I have to be blunt with you. Our recovery comes with a cost. Our national debt is almost 100 percent of GDP. So, we need to fix our public finances.
“Strong public finances do not happen by accident. They are a deliberate choice, a legacy for future generations, and a safeguard against future threats.
“I believe in fiscal responsibility. While I know tax rises are unpopular, some would say un-Conservative, I’ll tell you what is un-Conservative: unfunded pledges, reckless borrowing and soaring debt.
“Yes, I want tax cuts, but in order to do that, our public finances must be put back on a sustainable footing.”