The respected Institute for Fiscal Studies has delivered a stark warning about the government's recent budget plans, labelling key elements as 'fiscal fiction' that relies on unrealistic assumptions about future spending cuts and tax increases.
Unrealistic Spending Assumptions Exposed
In their detailed analysis of Chancellor Jeremy Hunt's budget presented on Wednesday, the IFS highlighted that the government's plans depend on £18 billion of unspecified spending cuts after the next general election. The think tank described these assumptions as highly unlikely to materialise in practice.
The budget, which included a controversial 1.5 percentage point increase in the main rate of National Insurance for employees and the self-employed, also featured significant tax cuts funded by what the IFS considers questionable fiscal planning.
Paul Johnson, director of the IFS, stated that the government's current plans imply real-terms cuts to many public services that would be extremely challenging to implement given the already stretched state of departments like the NHS and local government.
Tax Rises and Political Timing Questioned
The analysis raises serious questions about the timing and transparency of the proposed tax changes. The National Insurance increase, set to take effect from April 2026, would come after the next general election, meaning voters won't feel the impact when they go to the polls.
Meanwhile, the budget included immediate tax cuts, such as a further 2p reduction in National Insurance that will benefit workers from the current tax year. This creates what critics call a 'buy now, pay later' approach to fiscal policy.
The IFS calculation shows that the net effect of all tax changes announced in the budget would be to increase the tax burden by approximately £14 billion by the 2029-30 financial year, despite the headline-grabbing tax cuts.
Broader Economic Context and Challenges
Beyond the specific tax measures, the IFS warned about the broader economic challenges facing the UK. The country continues to grapple with high levels of public debt and persistent pressures on public services that show no signs of easing.
The think tank noted that even with the proposed tax increases and assumed spending cuts, government debt is projected to remain above 90% of national income for the foreseeable future, leaving little room for unexpected economic shocks.
The analysis concludes that the next government, regardless of which party forms it, will face extremely difficult choices between raising taxes further, cutting spending more severely, or accepting higher levels of debt.
This warning from one of Britain's most respected economic research institutions casts serious doubt on the sustainability of the current government's fiscal plans and sets the stage for contentious debates about the UK's economic future in the coming election campaign.
