Households ‘must brace for tax rises over next five years’

The IFS said it is not clear what Sir Keir Starmer's pledge of 'no tax increases on working people' actually means - Alison Jackson/Getty Images

Households must brace for tax rises for the next five years amid uncertainty over how the next government will fund its spending plans, the Institute for Fiscal Studies (IFS) has warned.

Both Labour and the Conservatives are engaged in a “conspiracy of silence” over the dire state of the public finances, said Paul Johnson, the think tank’s director.

The mounting cost of debt interest, healthcare and defence are all piling pressure on already-strained public finances, he said, yet there is little sign of how they will be paid for.

Mr Johnson said: “These raw facts are largely ignored by the two main parties in their manifestos. That huge decisions over the size and shape of the state will need to be taken, that those decisions will, in all likelihood, mean either higher taxes or worse public services, you would not guess from reading their prospectuses or listening to their promises.

“It will be a considerable surprise if no other taxes are increased over the next five years.”

Highest tax burden since 1940s

The tax burden is already closing in on its highest level since the 1940s, despite cuts to the headline rate of some levies including National Insurance Contributions (NICs).

Britain’s tax burden currently stands at 36.5pc of GDP, but the Government’s fiscal watchdog expects this to increase to 37.1pc over next five years, the highest level since 1948.

Both parties have promised not to raise the rates of income tax, NICs or VAT.

Mr Johnson said Conservative promises to crack down on tax avoidance and evasion to raise £5bn will mostly threaten small businesses and the self-employed, while Labour proposals to tax non-doms and private schools are unlikely to raise sufficient revenue.

He said: “Taken at face value, Labour’s promise of ‘no tax increases on working people’ rules out essentially all tax rises. There is no tax paid exclusively by those who don’t work. Who knows what this pledge is really supposed to mean.”

At the same time, spending promises are vague or unrealistic, he warned.

The Conservatives would struggle to cut the benefits bill amid a doubling in the number of working-aged people claiming disability benefits between 2019 and 2029.

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‘We do not know which taxes would go up’

Meanwhile neither Labour nor the Conservatives has explained how to fund their plans to improve the NHS, Mr Johnson added.

“You can’t pledge to end all waits of more than 18 weeks, allocate no money to that pledge, and then claim to have a fully costed manifesto,” he said.

On top of that, any wobble in economic growth will blow a hole in the numbers.

Mr Johnson said: “If – as is likely – growth forecasts are not revised up this autumn, we do not know whether the new government would stick roughly to the day-to-day and investment spending totals set out in the March Budget, or whether they would borrow more or tax more to top them up.

“If they were to stick to spending plans, we do not know what would be cut. If taxes are to go up, we do not know which ones. We certainly don’t know how they would respond if things were to get worse.”

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