IFS urges Rishi Sunak to raise taxes in budget to fund spending spree

The chancellor, Rishi Sunak, faces a tough choice at next month’s budget between raising taxes, entrenching austerity or abandoning Tory manifesto promises on government borrowing, according to the Institute for Fiscal Studies.

The tax and spending thinktank said the government was on-track to ramp up borrowing to about £63bn next year – £23bn more than the most recent official forecasts – amid a rapid increase in spending under Boris Johnson.

Delivering a warning to the chancellor ahead of the 11 March budget, the IFS said the Tories would probably break their election pledge to balance day-to-day government spending with tax income by the middle of the current parliament.

Sunak is expected to come under pressure from No 10 to tear-up the fiscal rules that were devised ahead of the snap December election by his predecessor, Sajid Javid.

Even ahead of the budget, the IFS warned: “It is not clear that the manifesto pledge to target current budget balance three years out would be met even under current policy.”

Calling on the chancellor to fund the increase in spending with tax rises, the IFS warned the alternative was to continue the intense pressure applied to Whitehall departments during the austerity drive of the past decade.

Despite rising expectations for an increase in funding to begin the long process of mending the public sector after a decade of austerity, the thinktank warned that the long period of cuts had made a lasting impact.

It said returning departmental spending to 2010 levels after adjusting for inflation – excluding the NHS, which had been protected – would require an additional £54bn funding settlement, it added.

Paul Johnson, director at the IFS, urged the chancellor to raise taxes. Sunak could abolish entrepreneurs relief, which costs £2.3bn and only benefits as few as 5,000 individuals, while also reforming council tax to increase charges on the most expensive homes in the country.

He added: “We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas. Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax.”