LONDON (Reuters) - Britain’s tax burden will rise to its highest in over 30 years by the time of the next national election in 2020, as the government tries to cut borrowing at the same time as leaving the European Union, a leading think tank said on Tuesday.
The Institute for Fiscal Studies estimated government revenues would rise to 37 percent of national income by the 2019/20 tax year - a level not seen since 1986/87 - even though Chancellor Philip Hammond has adopted a looser fiscal stance than his predecessor George Osborne.
Britain’s budget deficit, which is expected to fall to 3.5 percent of economic output this financial year, remains one of the biggest among the world’s rich economies and lowering it is likely to be made harder by the prospect of slower economic growth as Britain leaves the EU.
“For all the focus on Brexit, the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne,” IFS director Paul Johnson said.
“Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise.”
The IFS made its prediction as Hammond prepares to announce his first full annual budget on March 8.
In November, in his first fiscal statement since becoming Chancellor after June’s Brexit vote, Hammond revised up borrowing forecasts and formally scrapped Osborne’s goal of a budget surplus by 2020.
Since then, the Bank of England has raised Britain’s short-term growth prospects sharply. But households are still likely to see their disposable income stagnate later this year as higher inflation bites.
The IFS said the government’s plans were vulnerable to weaker-than-expected economic growth.
“Even on central forecasts (a balanced budget) is going to require extending austerity towards the mid-2020s. If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin,” Johnson said.
The IFS estimated there was a roughly one in three chance that Hammond will miss his budget goal - to cut the deficit, adjusted for swings in the economy to no more than 2 percent of national income by the 2020/21 financial year.
Hammond has also announced plans for greater public investment, which the IFS said would rise to a “historically high” level relative to day-to-day spending on public services by 2020/21.
But spending by government departments in real terms will be 13 percent lower in 2019/20 than when Hammond’s Conservative Party came to power in 2010, it said.
Reporting by David Milliken; Editing by William Schomberg