Think Tank: Election Winners Must Choose Between Shrinking State or Raising Taxes
The report highlights that the state’s size has permanently increased, surpassing pre-pandemic and pre-financial crisis levels.
Whoever wins the upcoming election will need to reduce public spending to align the state’s size with post-World War II averages or consider raising taxes to sustain current departmental funding levels, as per a report by a think tank.
The Institute of Fiscal Studies (IFS) published a report on Sunday, revealing that spending increased by 4.5 percent of national income during the last Parliament, a higher growth rate compared to any post-war Conservative government.
The IFS, an independent economic institute, observed that since 2019, expenses on debt interest, social security benefits, and state pensions grew faster than anticipated.
Prior to the COVID-19 outbreak, these areas were expected to remain stable or decrease, but instead experienced a combined £74 billion increase between 2019–20 and 2024–25.
The report also forecasts an expansion in health and defense expenditures after years of cutbacks, indicating an inevitable growth in the state’s size and cost.
Permanent Increase
“A significant portion of this growth appears to be lasting,” the report noted, suggesting that by 2028–29, the state will exceed its pre-pandemic, pre-crisis, and post-World War II average size.
Bee Boileau, a research economist at IFS and report co-author, emphasized the choices new government officials will face post-election, highlighting the need to either trim state provisions, raise taxes, or borrow to maintain existing spending levels.
Ms. Boileau underscored that neither major party has shown intention to reduce state scope, rule out tax hikes, or consider altering major taxes, signifying an imminent need to choose between these options post-election.
Inevitable Tax Hikes
Following the IFS analysis, the Resolution Foundation released a report asserting that regardless of the election outcome, higher taxes are on the horizon.
The foundation highlighted existing agreements on annual tax rises totaling £23 billion by 2028–29, averaging £800 per household, commitments implicitly endorsed by both the Conservative and Labour parties.
The report pointed out scheduled tax increases affecting Britons, including a planned 5 pence per liter hike in Fuel Duty and a threshold reduction for stamp duty, among others.
Existing Government Policy
The Resolution Foundation noted that tax hikes are already part of government policies set to come into effect post-election, urging transparency from politicians regarding the inevitable tax hikes irrespective of the election outcome.
The foundation hinted at additional tax increases following elections historically, reinforcing the anticipation of new tax burdens in the foreseeable future.
