Finance hangs a ‘dark cloud’ over election campaign, says IFS

A leading think tank has issued a stark warning about the fiscal challenges that await the next government.

The Institute for Financial Studies (IFS) says the state of public finances hangs “like a dark cloud” over the election campaign.

And it warns that tax hikes or cuts to public services could come.

It calls for an “open and robust” debate on how all parties can deal with these.

Both Labor and the Conservatives have committed to reducing debt as a share of national income. All major parties may have similar self-imposed rules to reduce the government’s cost of borrowing from financial markets.

But the independent IFS says higher interest payments on existing debt and lower expected economic growth will make future debt reduction more difficult than in any parliament since the 1950s.

Under existing rules, the current president could cut more than 10% in funding for some public services, such as justice or higher education, in coming years, taking into account population growth and inflation. .

Taxes are on track to absorb a larger share of the country’s income, rising from 36.5% in the current tax year to 37.1% in 2028-29, especially as different tax rates on income are frozen. rises with inflation as they traditionally do.

So, barring a dramatic improvement in growth, the next government may face three broad choices, says the IFS.

Paul Johnson, director of the IFS, said: “Money is tight. We might get incredibly lucky with growth and escape making these tough choices. But we might not.

“Just because thousands of English and Scottish football fans are crossing their fingers and hoping for the best this summer doesn’t mean the next cabinet has to do the same.”

He added that the next government should not wait until it enters office to “open the books” as they are published and available for anyone to examine.

“We should use them as a basis for open and robust debate during the election campaign,” he added.

The IFS’s warning echoes what it said after the Budget in March about a “conspiracy of silence”, meaning the main parties failed to acknowledge the potential challenges, or spell out how they would tackle them.

All parties will present policies to empower voters in the coming weeks.

But with most economists coming to a conclusion like the IFS, such pledges will be made against a backdrop of constrained public finances – which could mean tough choices that could ultimately affect the fortunes of the electorate.

Responding to the IFS’ findings, Shadow Chief Secretary to the Treasury Darren Jones said he was under no illusions about the scale of the challenge Labor could face.

“The country will see a full scale challenge only if we win the elections. We have promised immediate payment in our public services and then we will get down to work to transform the country,” he said.

The BBC has also approached the Conservative Party for comment.