Large tax increases 'needed' to redress public finance deficit

Taxes may have to rise by significant amounts if the UK’s public finances are to return to balance in the timescale outlined by the Chancellor, a think tank has claimed.

The National Institute for Economic and Social Research (NIESR) has said that the level of government debt could take until 2023 before it reduces to 40 per cent.

Even then it would require stringent action on pensions, spending and taxes to restore the balance sheet to internationally acceptable levels.

The NIESR report outlined three possible areas where government action was needed.

Raising the state pension age, from 60 for women and 65 for men, to 70 between 2013 and 2023 would help produce extra tax income for the government and would reduce the amount paid out in pensions.

But if the retirement age were to be lifted above the increase to 68 that is already penciled in for men and women between 2024 and 2046, there would still be a need of a tax rise in the order of 8p in the pound to help fill the gaps in the public purse.

The only other option would be to cut public spending by as much as 10 per cent.

Ray Barrell, a senior research fellow at the NIESR, said: “The choice is we have got to raise income tax a lot, cut spending a lot, or work longer. There is a stronger case for extending working lives because we’re all living so much longer.”