UK’s mounting debts unsustainable if sweeping tax cuts go ahead, warns IFS
Britain’s mounting debts will be unsustainable if the government presses ahead with sweeping tax cuts in a mini-budget on Friday, according to a taxation and spending watchdog, the Institute for Fiscal Studies.
Fuelling concerns that the UK’s precarious financial position will spark a run on the pound, the chancellor, Kwasi Kwarteng, is expected to reverse a hike in national insurance payments and cut corporation tax at a cost of £30bn to the Treasury.
Kwarteng, who will announce a review of his fiscal rules to allow the government to borrow more, is also expected to giveaway billions of pounds by cutting stamp duty on house purchases and confirm a multibillion rise in the defence budget to support the war in Ukraine and boost growth.
These measures will be in addition to a freeze on energy prices for consumers and businesses that could cost more than £150bn over two years.
“Recent rapid increases in the cost of debt interest highlight the risks of substantially and permanently increasing borrowing and putting debt on an ever-increasing path,” the IFS report said.
“There is no miracle cure, and setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble, at best,” it added.
Sterling fell to $1.138 – down from $1.22 last month and $1.40 last year – as traders switched to buying the dollar in advance of Friday’s mini budget.
Analysis by the IFS showed promises to cut taxes and increase spending would push government borrowing to £100bn even if the energy crisis abated next year – £60bn above previous estimates.
Extra spending on pensions and benefits, which are linked to inflation, and an estimated £18bn hole in public sector budgets, which is likely to increase once higher
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