Think Tank Warns of Fiscal Crisis, Urges Tax Hikes to Stabilize Finances

The UK's financial situation is under scrutiny, with concerns arising over a significant deficit in public finances. A prominent economic research organization is advising the Chancellor to consider tax increases to stabilize the economy. This recommendation stems from factors such as reversed welfare cuts, substantial borrowing, and sluggish economic performance, which have collectively worsened the fiscal outlook.

The Chancellor is facing a substantial shortfall in meeting her fiscal targets. This shortfall, projected for the end of the decade, highlights the need for corrective measures. The research group suggests that either tax increases or spending cuts will be necessary in the upcoming budget to address the financial gap. Furthermore, the group has lowered its growth forecast for the UK's economy in the coming year.

The economic think tank is advocating for the government to establish a "large fiscal buffer" through a gradual but consistent increase in taxes. This approach is intended to alleviate concerns in the bond market regarding the government's financial stability, potentially lowering borrowing costs. It is also expected to reduce policy uncertainty, which can negatively impact both business and consumer confidence.

Professor Stephen Millard, a leading economist at the research organization, has expressed concern about the current economic climate. He noted that with modest growth and inflation exceeding targets, the Chancellor faces a challenging situation. He emphasized the need for either tax increases or spending reductions, or a combination of both, in the upcoming budget to adhere to fiscal regulations. The UK is also expected to experience higher-than-anticipated inflation. Despite these warnings, the think tank anticipates the Bank of England will lower interest rates in the coming years.