How can the government fill the £50 billion fiscal black hole that the National Institute for Economic and Social Research identified last week?
Abandoning our fiscal rules is a non-starter. These are a weak enough constraint as it is, and with the UK already borrowing more, and at higher costs, than most other major economies, our room to ramp up debt is severely limited.
Spending cuts are neither impossible nor impractical. Current plans suggest that annual government spending in the 2029-30 tax year will be about £60 billion higher in real terms than it is now. Limiting the overall increase to inflation over the next few years would solve the problem.
Yet a large part of government spending — on debt interest, pensions and an ailing NHS — is hard to manage in the short term. The result is that spending uplifts linked only to inflation would require a degree of radicalism that the government lacks the policy-thinking, democratic mandate and political will to deliver. If ministers couldn’t trim around the edges of the welfare bill, then saving £50 billion is going to be a tall order.
And so we come, inevitably, to tax increases. The National Institute for Economic and Social Research correctly argues against further taxes on jobs, savings, investment and profits, noting their anti-growth impact. It correctly points out that revenue increases on this scale must come from the big, broad-based taxes: namely, income tax or VAT.
