Next government will have to raise taxes, cut services or borrow more, IFS warn as they slam 'conspiracy of silence'

24 June 2024, 10:52 | Updated: 24 June 2024, 11:20

A top think tank has accused both Labour and the Conservatives of engaging in a "conspiracy of silence" about tax plans in their manifestos.

The Institute for Fiscal Studies (IFS) said both leading parties were ignoring a "painful" choice between tax rises and spending cuts in their proposals for government ahead of the General Election.

Any new government will have to cut spending on many public services, borrow more or increase taxes, IFS director Paul Johnson said.

Mr Johnson said that despite taxes being at close to the highest level ever seen, public services are "visibly struggling". He said that a "£50bn a year increase in debt interest spending" and a "growing welfare budget" were largely to blame for this.

Both parties have pledged not to increase income tax, national insurance or VAT.

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Labour have said they will raise £8.6 billion in new tax revenue, mostly through closing non-dom loopholes, charging private schools VAT and business rates and levying a windfall tax on oil and gas companies.

The Conservatives have promised tax cuts, including cutting another 2p off national insurance. They have accused their opponents of wanting to charge each household £2,000 in new tax.

But Mr Johnson told reporters that there was a "knowledge vacuum" in the information presented to voters ahead of the election.

He said: "We have rising health spending, a defence budget which for the first time in decades will likely grow rather than shrink, and the reality of demographic change and the need to transition to net zero".

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"Add in low growth and the after-effects of the pandemic and energy price crisis and you have a toxic mix indeed when it comes to the public finances."

"These raw facts are largely ignored by the two main parties in their manifestos".

Mr Johnson said: "In line with their unwillingness to face up to the real challenges, neither main party makes any serious new proposals to increase taxes",

He added: "Consistent with their conspiracy of silence, both are keeping entirely silent about their commitment to a £10bn a year tax rise through a further three years of freezes to personal tax allowances and thresholds.

"Both have tied their hands on income tax, NICs, VAT and corporation tax.

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"The Conservatives have a long list of other tax rises, and reforms that they wouldn't do. Labour have ruled out more tax options since the publication of the manifestos.

"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?"

Mr Johnson said that the promises made by Reform UK and the Greens were "wholly unattainable" and were serving to "poison the entire political debate".

He said that the Liberal Democrats had higher tax and spend plans than either the Conservatives or Labour.

He added: "The choices in front of us are hard. High taxes, high debt, struggling public services, make them so.

"Pressures from health, defence, welfare, ageing will not make them easier. That is not a reason to hide the choices or to duck them. Quite the reverse. Yet hidden and ducked they have been."