Budget 2024: More tax rises likely to prevent public service cuts after 14 years of Tory rule

The Institute for Fiscal Studies thinktank praised Chancellor Rachel Reeves' 'courageous' Budget - but the experts also warned 'this is the decade of higher taxes'

Labour risks having to raise taxes in future years to prevent cuts to public services, a leading body has warned.

The Institute for Fiscal Studies hailed Chancellor Rachel Reeves's “courageous” Budget, which included higher borrowing to help fund vital spending on everything from the NHS to prisons after 14 years of Tory neglect. Paul Johnson, its director, called it “the right thing to do, even if the upfront costs are significant”.

The Budget reversed the Tories’ planned cut in day-to-day government spending this year, with a 4.8% jump instead, followed by 3.1% next year. But the real terms spending will fall to 1.3% after that which, while more than the last government signalled, risks cuts for some unprotected departments, the IFS said.

It predicted Labour, keen to ensure boost public services, may need to “top-up” spending. Asked whether that might be funded through further tax rises, Mr Johnson said: “There must be a risk that that will occur,” adding it would be “extremely challenging” to keep to the 1.3% forecast rise.

“I am guessing the Chancellor will be hoping for better news on growth,” Mr Johnson said. He went further, predicting: "This is the decade of higher taxes".

It came after Ms Reeves’s Budget revealed £70billion of spending on public services, part-funded by £40billion of tax hikes.

Mr Johnson said: “The government has inherited some really serious pressures,” adding a lot of the extra money was going towards maintaining services rather than substantial improvements. He also criticised recent Tory tax changes, saying they “lacked credibility”. “To cut £20billion from employee national insurance last year in the face of known fiscal pressures was not responsible.”

The NHS, along with local government, the Department for Work and Pensions, education and justice are among areas to get the biggest short-term funding boost. But Mr Johnson warned: “This is not going to feel like Christmas has come for the public realm.”

The most controversial tax hike in the Budget was a £25billion a year jump in employers’ national insurance. The final boost to the Treasury will be far less given an expected hit to wage growth and as public sector employers will receive about £6billion back, the IFS said.

Its analysis found a business employing someone on a minimum wage of £22,000 will incur an extra £770 next year in national insurance, or £900 for a worker on £33,000. But, as percentage of their overall wages, firms employing lower paid workers - and those part-time - would be disproportionately hit hardest.

The IFS raised concerns about Labour’s borrowing blitz to help fund investment, which will result in £100billion a year in interest costs, with Mr Johnson warning: “This constraints everything else.”

He also criticised Ms Reeves - and previous Chancellors - was freezing fuel duty with the suggestion that it will rise in subsequent years, calling it “silly”.