Chancellor Kwasi Kwarteng is set to deliver the biggest tax cuts in more than 30 years but leave annual Government borrowing at more than £100 billion in four years’ time, leading economists said on Thursday.
Ahead of the mini-Budget on Friday, the Institute for Fiscal Studies also warned the Government’s dash for growth may not deliver on anything like the scale hoped for and that it needed far wider reforms including on education, planning, skills, trade and infrastructure.
IFS director Paul Johnson said: “If as expected, Mr Kwarteng announces the reversal of the National Insurance increases and the Corporation Tax increases which are due next year, we think it will be the biggest tax-cutting fiscal event since Nigel Lawson’s Budget of 1988.”
But with £30 billion of tax cuts, which would benefit the wealthy most, the budget deficit in 2026/27 could still be £104 billion.
“If that is where we end up, not only will that break the fiscal rules legislated just earlier this year, it will put debt on an unsustainable path,” added Mr Johnson.
“If we do get the increase in growth that the Prime Minister is looking for, then it all becomes easier but there is no gurantee of that.”
The IFS stressed freezing of income tax thresholds will raise £30 billion rather than the forecast £8 billion by 2025/26 due to high inflation, and mean 7.7 million people paying the higher rate.
Despite the tax cuts, most households will be worse off this year than last due to the “energy price shock”.
Mr Johnson added: “The Government can spread the pain over time and between people but in the end it’s not going to be able to magic it away.”
