Tax is set to rise as a share of the UK’s income to its highest level since 1986, according to a think tank.
Higher income from taxes and relatively low growth will combine to create this effect, according to the the Institute for Fiscal Studies.
Austerity will continue into the 2020s, after Chancellor Philip Hammond’s decision to scrap a target of balancing the nation’s books, it said.
The Treasury said it was committed to repairing Britain’s finances.
Forecasts by Oxford Economics, which contributed to the report, estimate the UK economy will grow by 1.6% in 2017.
In 2018, growth in gross domestic product will slow to 1.3%, Oxford Economics said. Growth is expected to be dulled as a result of inflation prompted by the decline of the value of the pound after the EU referendum.
While a weaker pound is likely to improve the performance of manufacturers and exporters, higher costs for consumers will more than erase this gain, said the report.
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“Though the UK economy has continued to achieve solid growth, it has been almost entirely reliant on the consumer,” said Andrew Goodwin, lead UK Economist at Oxford Economics and co-author of part of the report.
“With spending power set to come under significant pressure from higher inflation and the welfare squeeze, the consumer will not be able to keep contributing more than its fair share. Exports should be a bright spot, but overall a slowdown in GDP growth appears likely.”
The UK’s economy could be 3% smaller by 2030 than if Britain had voted Remain, according to forecasts in the IFS’s annual Green Budget.
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This annual analysis, ahead of next month’s Budget, says spending on health, social care and benefits for sick or disabled people represents a particular risk to the public finances because it accounts for almost one third of government expenditure.
The report confirms that the period between 2009 and 2014 saw the slowest rate of growth in health spending in England since the mid-1950s.
And it argues that health budgets by the end of this decade will be over a billion pounds less than what is needed to cope with England’s growing and ageing population, regardless of what are likely to be significant rises in demand for NHS care.
In a statement, the Treasury said: “The government is committed to repairing the public finances and living within our means so that we can build an economy that works for all.
“That has required some difficult decisions on spending, but we are determined to deliver efficient public services which provide maximum value for every pound of taxpayers’ money.”
Spending on public services dropped by 10% since 2010, the report said, after adjusting the figures for inflation.
To meet his target of eliminating the deficit during the next parliament, which is from 2020 to 2025, Mr Hammond will probably have to find a further £34bn in tax rises and spending cuts, extending austerity.
The report said £17bn of tax rises could be needed to contribute to closing the gap for government between outgoings and income.