For the next government, getting debt to fall as a share of national income will be more difficult to achieve than in any parliament since at least the 1950s, according to the IFS.
The IFS has warned the fiscal challenge awaiting the next government will “hang over the election campaign like a dark cloud”.
It revealed that taxes as a share of national income are forecast to grow from 36.5 per cent in 2024-25 to 37.1 per cent in 2028-29, not least due to frozen tax thresholds.
It also said spending on everything other than debt interest is set to fall from 40.8 per cent to 39 per cent of national income.
“The fact that this is only just enough to stabilise debt in five years’ time speaks to the difficulty of the economic and fiscal inheritance awaiting the next government,” it added.
To get debt falling, latest forecasts suggest the government will need to run “substantial” primary surpluses, to raise more in tax and other revenues than it spends on everything other than debt interest, something the country has not achieved for more than 20 years.
The IFS has laid out three broad options the next government could implement which include introducing the spending cuts already laid out in existing plans which the IFS said would be “painful”.
Implementing tax rises over and above those already in the books or it could borrow more, which the IFS said was highly unlikely to be consistent with a promise to stabilise debt as a share of national income.
The IFS said: “The parties might well be reluctant to tell us which of these they would opt for upon taking office. That doesn’t mean that we should refrain from asking them.”
Paul Johson, director of the IFS said parties need to reckon with the reality of the economic and fiscal context in which the election is taking place.
“Money is tight. Public services are creaking, taxes are at historically high levels, and both parties are hemmed in by their very clear pledges to get debt falling.
"It is only falling, marginally, on current forecasts, because tax rises and spending cuts are already baked into baseline forecasts. To avoid cuts to key public services in the post-election spending review would require further tax rises. Promising tax cuts would mean even sharper cuts to struggling public services.
“We could get miraculously lucky with growth and escape having to make these tough choices. But we might not. Just because thousands of English and Scottish football fans are crossing their fingers and hoping for the best this summer doesn’t mean that the next cabinet should do the same.
“The next government doesn’t need to enter office to ‘open the books’; those books are transparently published and available for all to inspect. We should use them as the basis for an open and robust discussion during the election campaign,” he added.
alina.khan@ft.com
