Britain is entering a “new era” of higher taxation and public sector austerity because of its long-term failure to generate economic growth, the Institute for Fiscal Studies said on Friday.
Publishing its analysis of the fiscal tightening set out in chancellor Jeremy Hunt’s Autumn Statement, the think-tank said the tax burden was settled “at its highest sustained level in history relative to national income” — at least four percentage points of gross domestic product, or £100bn, higher than it was for most of the last 70 years.
This is partly because higher interest rates will force the government to double the amount it spends on debt interest payments, with earlier decisions on borrowing, and in particular on quantitative easing, “coming home to roost”.
Public spending, while also high, would feel “pretty austere” if the government goes through with the cuts it has pencilled in for after the next election, the IFS said.
Paul Johnson, the IFS director, said it was “a grim place to be” with “high borrowing, high debt, high tax and yet a lot of public services feeling under strain”. He also said that with cuts in defence spending off the table, and the population ageing, higher taxes were almost certainly “here to stay”.
“We are . . . reaping the costs of a long-term failure to grow the economy, the effects of population ageing, and high levels of past borrowing . . . The truth is, we just got a lot poorer. We are in for a long, hard, unpleasant journey,” he said.
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