(Bloomberg) — All of Britain's political parties need to be honest about the tough fiscal choices facing the next government in the upcoming election campaign, according to the Institute for Fiscal Studies think tank.
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The challenges awaiting the winner will be greater than any government has faced since at least the 1950s, and wishful thinking that economic growth will come to the rescue will involve relying on a “miracle of good fortune”, said IFS director Paul Johnson.
Chancellor Rishi Sunak on Wednesday fired the gun to call for a general election on July 4. The ruling Conservative and opposition Labour parties are due to publish their manifestos within two weeks and have already argued that the other side's plan is unworkable.
Both parties have pledged to stabilise the debt burden, which is currently close to 100% of GDP, but whoever wins will likely be left with high debt, high interest rates and slow growth, the IFS said.
Mr Johnson said the party had three realistic options: accept the “painful” public service spending cuts currently planned, increase the tax burden which is already set to reach its highest level in 80 years, or borrow more and leave debt as a percentage of GDP unstabilised.
Mr Johnson has long argued for an open debate about the difficult choices facing the country, but acknowledged that politicians are “reluctant to say which way they're going to choose” during election campaigns. “But that doesn't mean we should refrain from asking them questions,” he said.
Already struggling public services such as the justice system and local government face further cuts, with the next parliament set to reduce non-debt interest spending from 40.8% of national income to 39%, Mr Johnson said.
Stabilising the debt-to-GDP ratio would require raising significantly more in taxes than it spends on non-debt interest. The last time Britain ran a primary budget surplus was 23 years ago.
“Money is tight, public services are ageing, taxes are at record levels and both parties are bound by clear promises to reduce the debt. Further tax increases will be needed to avoid cuts to major public services in the post-election spending review,” Mr Johnson said.
“Any sort of miracle of economic growth might prevent us from having to make these tough choices – but that may not happen. Just because thousands of football fans in England and Scotland are crossing their fingers for the best this summer does not mean the next Cabinet should do the same.”
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