Graphic repesentation of economic recovery after Covid-19.

IFS: Public finances could see £100bn hit by 2024

The IFS has forecasted that public finances will see a £100bn hit by 2024 as a result of Covid-19 borrowing in a report released today (Oct 13).

The report warns that even without excess spending, a reduced tax income would mean that public finances are hit by £100bn, with the worst predictions factoring in added spending taking the hit to £200bn.

A reduced economy size, of approximately 5% smaller, is the reason given for the financial hit that will affect the whole of the public sector.

The IFS warns though, that over the next 18 months, the Government must put economic regrowth at the forefront of policy decisions, with borrowing concerns taking a backseat while the economy gets back to pre-Covid levels.

Paul Johnson, IFS Director and an editor of the Green Budget, said:

“We are heading for a significantly smaller economy than expected pre-COVID, and probably higher spending too. Without action, debt – already at its highest level in more than half a century – would carry on rising. Tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade.

So far, the challenge to the public finances has been eased by historically low interest rates. But this is also a vulnerability: successive rounds of quantitative easing mean that debt interest spending will rise sharply and suddenly with any increase to the Bank Rate.

Locking in more government borrowing on a long-term, inflation-linked basis would ensure that the real cost of a greater share of government debt was locked at current low levels and would provide a signal that the Government would not be tempted to try to inflate away debt.”

PSE Dec/Jan 20-21

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