Friday, November 22, 2024

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

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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.”

Under a Labour government, the IFS said higher rates of capital gains tax on investments is “maybe the most obvious” area to target.

However, Helen Miller, an economist at IFS, said a small rise in the tax “is not going to get you very much money” while a larger rise in the levy “at some point is going to lose you money” as it could deter people from investing.

Mr Johnson also raised the prospect of road pricing – potentially emulating London’s Ulez nationally, or charging car owners for every mile driven – to replace the loss of fuel duty.

Tax on petrol and diesel as well as the vehicle excise duty paid by drivers amounts to around £30bn per year.

Revenues “are going down and down as we move to electric cars. We need a government that is going to deal with road pricing or some other way of getting some of that revenue back,” Mr Johnson said.

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.

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