View from Westminster Sign up for emails to get expert analysis delivered straight to your inbox.
Get your free View from Westminster email
The winner of the next general election will need to raise taxes to maintain current public service provision, according to new analysis from a leading think tank.
National Institute of Economic and Social Research (Nisel) Added that amid slowing economic growth and easing inflation, there is “essentially no fiscal space for further tax cuts.”
The UK economy grew by 0.1% in 2023, under pressure from rising interest rates and rate hikes by the Bank of England's rate setters to curb rampant inflation.
In the latest economic outlook report, Nisel GDP (gross domestic product) is expected to increase by 0.4% in the first quarter of 2024, and 0.8% for the full year compared to 2023, he said.
Nevertheless, it said this still points to a “slower trend in UK GDP growth”.
The announcement comes a week after the Organization for Economic Co-operation and Development (OECD) cut its economic growth outlook for the UK over the next two years, adding that it will be on the weakest growth path among G7 countries next year.
Stephen Millard, Deputy Director of Macroeconomic Modeling and Forecasting Niselsays: “Despite a welcome fall in inflation, UK growth remains anemic.
“This will make it difficult for the next government to deliver much-needed infrastructure investment, a green transition, and increased spending on public services and defense without raising taxes or rewriting fiscal rules.
“This highlights the need to reform the fiscal framework to enable governments to do what the economy needs to do in a fiscally sustainable way.”
The next UK general election is now widely expected to be held in late 2024, with Labour's shadow chancellor Rachel Reeves saying earlier this week that she intends to fight the next general election on the economic situation. .
Nisel The report also predicted that the next interest rate cut would be in August from the current level of 5.25%. This year, we have factored in two production cuts.
The forecast also shows that average living standards are set to improve by around 6% year-on-year in 2024/25, but stressed that this situation will vary widely across income distributions.
The poorest tenth of households will see their disposable income fall by 2%, while those in the fourth to ninth deciles are expected to see a 7-8% improvement.
Adrian Pabst Nisel “While real wages have risen, households in the lower half of the income distribution continue to feel the effects of the cost of living crisis, with housing costs canceling out the benefits of real wage increases.”Public Policy said the deputy director in charge.
“Similarly, despite cuts to National Insurance contributions, personal allowance and tax freezes are making life worse for low- and middle-income households.
“Despite some efforts, regional inequalities persist and in some cases worsen.”
