IFS: Government will have to spend £19bn more to 'end austerity'

According to a new report by the Institute for Fiscal Studies, the government will have to find an extra £19bn per year if it is to keep up with Theresa May’s “austerity is over” promise.

The pre-Budget report states that higher borrowing and higher taxes are necessary. If not, the likes of raising £20.5bn for the NHS by 2020 wouldn’t be achieved. However, the Treasury argues that taxes should be kept as low as possible.

A spokesperson for the Treasury commented: “Our balanced approach is getting debt falling and supporting our vital public services, while keeping taxes as low as possible.

“This year, we have already committed an extra £20.5bn a year to the NHS, scrapped the public sector pay cap, and frozen fuel duty for the ninth year in a row.”

The government is currently looking at ways of freezing tax thresholds, which means a pledge to raise the limit to £12,500 a year for lower-rate taxpayers and £50k per year for higher-rate taxpayers, by 2020, could be in jeopardy.

Ahead of the Autumn Budget in two weeks, Paul Johnson, director of the IFS, said that Philip Hammond, Chancellor of the Exchequer, will be facing “probably the biggest non-Brexit related decision” so far.

“He has a choice… He could austerity, as the Prime Minister has suggested.

“But even on a limited definition of what that might mean would imply spending £19bn a year more than currently planned by the end of the parliament. An increase of that size is highly unlikely to be compatible with his desire to get the deficit down towards zero.”

Tax revenues tend to rise during periods of better economic growth and the need for benefit payments tends to reduce.

The IFS has stated that austerity is indeed not over yet. The economy is said to be two per cent smaller than initially expected before the Brexit referendum.