Annual tax rises of £40bn will be needed if the government wants to keep spending constant and balance its books by 2025, a think tank has warned. The Institute for Fiscal Studies added that dismal productivity, earnings and GDP growth had become the "new normal".
Its forecast comes after the chancellor unveiled upgraded growth and borrowing forecasts in the Spring Statement on Tuesday. Paul Johnson, director of the Institute for Fiscal Studies (IFS), said that "nothing much" had changed in the Spring Statement. He said the UK was still suffering the hangover of the 2008 financial crisis and its growth outlook was "the worst in the G20".
He said the big problem facing the chancellor was how to balance growing demands for spending increases with his promise to eliminate the deficit by the mid-2020s.On the one hand, public services such as prisons and the NHS were struggling "in a way that they were not two or three years ago", Mr Johnson said. On the other, the government is struggling to collect as much tax as it used to, after taking large numbers of people out of paying income tax.
Given the outlook, the IFS said tax rises of £30bn would be needed each year to retain public spending and balance the budget by the middle of the next decade - a Conservative Party pledge.
Commenting on the IFS's analysis, John McDonnell MP, Labour's shadow chancellor, said: "Despite the chancellor's spin, the IFS has revealed that there may be £30bn of new tax rises and spending cuts to come.
"Under the Tories, it won't be the richest who are hit by these tax rises and austerity cuts, but the poorest - largely families and children - who will bear the brunt of their heartless economic plans."
A Treasury spokesperson said: "Our balanced approach has reduced the deficit while also cutting taxes for over 30 million people and investing in our vital public services."
The dollar held near one-week lows on Wednesday as the sudden dismissal of U.S. Secretary of State Rex Tillerson and news that Washington is seeking to impose tariffs of up to $60 billion of Chinese imports reverberated through currency markets.
The prospect of a global trade conflict has weighed on the dollar and any escalation would significantly weaken it further. The greenback has been supported by growing expectations of as much as four rate hikes this year.
U.S. President Donald Trump is seeking to impose tariffs on up to $60 billion of Chinese imports and will target the technology and telecommunications sectors, two people who discussed the issue with the Trump administration.
The news comes before a crucial G20 meeting next week where the world’s leaders will pledge to fight unfair trade practices and stress the role of global trade rules in the backdrop of a brewing trade war.
The greenback also lost some traction after February U.S. inflation data out on Tuesday matched expectations, suggesting the Federal Reserve remained on track to raise interest rates at a gradual pace.