End austerity or eliminate the deficit?

Theresa May faces ‘stark choice’ as IFS warns of massive tax hikes needed to ease squeeze on public services

(Image credit: Dan Kitwood/Getty Images)

British taxes would need to rise to their highest levels since the 1940s to meet Theresa May’s promise to end austerity, the Institute for Fiscal Studies has suggested.

The think tank has calculated the prime minister would need to magic up a massive £19billion a year just to achieve a “minimal definition” of ending austerity.

The Chancellor, Philip Hammond, who last year backed down on planned tax rises for self-employed, has set a target of running a balanced budget by the mid-2020s.

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However, just two weeks before he is to deliver his budget, fiscal prudence has come into conflict with political expediency as the Tories look to woo disaffected voters tired by ten years of public sector cuts.

Amid economic uncertainty surrounding Brexit, the prime minister has already earmarked an extra £20 billion for the NHS, doubling down at this month’s Tory party conference by telling delegates austerity “is over”.

The question now is whether the government’s actions will match her rhetoric.

If the Chancellor chooses to fund the end of austerity by raising taxes by 1% of national income, “this would bring the overall tax burden close to its highest level since the end of the Second World War - though it would still be in the middle of the range for developed industrial countries”, says Insider.co.uk.

The IFS says higher taxes need not hurt the economy but May’s fragile hold on power, as she attempts to navigate Brexit, makes significant increases unlikely.

Instead, “efforts to lighten Britain’s debt burden were the likeliest casualty of May’s promise to end austerity, potentially leaving the country vulnerable when the next economic crisis hits”, reports Reuters.

“Increasing borrowing is clearly the line of least resistance,” IFS director Paul Johnson said. “It’s going to be very hard, for all sorts of very obvious reasons, for anything very substantial in terms of tax rises in the short run.”

While the budget deficit fell last year to its lowest level since 2002, public debt as a share of GDP has more than doubled since the financial crisis.

City A.M. says the government, therefore, faces “a stark choice between upholding Theresa May’s promise to 'end austerity' or meet its target of eliminating the deficit”.

Describing May’s austerity boast as a “sham”, the Daily Mirror says “even if she achieved the impossible that would still leave a devastating £7billion worth of savage cuts to social security”.

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