British finance minister Rishi Sunak needs tax rises of about $83.4 billion to ensure the government can balance the books following the Covid-19 crisis, but the March budget will be too soon to make a move, a UK think tank said on Tuesday.
The warning from the Institute for Fiscal Studies comes just two weeks before Sunak unveils the Treasury’s plan to address the economic fallout from the pandemic, which has put the government on track to borrow $555 billion this fiscal year.
Uncertainty over whether the pandemic will ease or flare up once again, means Sunak should focus his attention on targeted measures to prevent job losses and encourage business investment rather than raise taxes now, the IFS said.
“For now, Sunak needs to focus on support and recovery. A reckoning in the form of big future tax rises is highly likely, but not as yet inevitable,” said IFS director Paul Johnson.
“In the budget he needs to strike a balance between continuing support for jobs and businesses harmed by lockdowns, and weaning the economy off blanket support which will impede necessary economic adjustment,” Johnson said.
Looking ahead, the IFS said Sunak will also have to pump more money into health, education, justice and local government to cope with the fallout from the pandemic and meet the longer-term challenges of Brexit and an economy aimed at net-zero carbon emissions.
Meanwhile, employee support programs such as the furlough scheme should be phased out as restrictions ease.
However, rather than cutting it completely, the IFS recommended “a much more tightly targeted version” may be needed for sectors restricted for longer, such as aviation.