Taxpayers will need to shoulder a further tax burden of £39 billion if targets set out in last Novembers Pre-Budget Report are to be met, a report announced today.
The study, conducted by the Institute of Fiscal Studies (IFS), claims the future of public finances is significantly weaker than predicted. This comes amid speculation that the chancellor could admit he was wrong in his deficit predictions when he gives his Budget statement on April 22nd.
The IFS report found that if the current blueprint is to meet targets to be balanced by 2015-16, this would require an additional fiscal tightening worth around £39 billion of national income. This would mean an average tax increase of £1,250 per family if this was raised entirely through tax.
An alternative way of raising the funds would require a five-year freeze in total public spending.
The IFS also predicted that net debt would stand at a little below 90 per cent by the 2050s without further fiscal tightening, far higher than the Treasurys forecasts of 40 per cent.
According to the report the "fiscal fallout from the current economic and financial crisis means that, on the Treasurys own figures, these goals will be missed by huge margins over the economic cycle that the Treasury expects to run from 200607 to 201314".
Responding, a Treasury spokesperson said: "Clearly, the depth of the global downturn has been more severe than anyone expected and this is affecting tax revenues here and in every country in the world. The chancellor will set out his forecasts at the time of the Budget. As he has said, he will have to balance support for the economy now, with the need to ensure that in the medium term all countries live within their means.
"The measures already taken will help ensure the recession is shorter than it otherwise would have been."
Dr Richard Wellings, deputy editorial director of the Institute of Economic Affairs, believes the IFS report could be overly positive itself.
"The IFS report will be grim reading for Alistair Darling, he said. But these figures, based on Bank of England growth forecasts, may still be too optimistic. The recession could be even longer and deeper, and the government could end up even further in the red. In addition, on top of official debt the government owes at least another £1 trillion in public sector pension liabilities.
"The report contains very worrying projections about long-term borrowing levels and it is important that action is taken on this.
He added that higher taxes are not the right solution.
Dr Wellings said: Taxes are now so high in the UK that it is doubtful whether raising them further will produce much extra revenue. Increasing the general level of taxation would reduce economic growth, which would be counterproductive.
"Darling must therefore bite the bullet and announce large public spending cuts in the forthcoming Budget. Reforming public sector pensions would be a good start."