Households are looking at significant tax rises whichever party wins the next election, a leading economic think tank has warned.
The National Institute of Economic and Social Research (NIESR) said there is “essentially no fiscal headroom for any further tax cuts” amid slow economic growth and easing inflation.
NIESR forecasts GDP (gross domestic product) will have grown 0.4% over the first quarter of 2024 and will rise 0.8% for the year as a whole, a rate it described as “anaemic”.
Stephen Millard, deputy director for macroeconomic modelling and forecasting at NIESR, said: “Despite the welcome fall in inflation, UK growth remains anaemic.
“This will make it difficult for any incoming government to carry out the much-needed investment in infrastructure and the green transition, as well as increase spending on public services and defence, without either raising taxes or rewriting the fiscal rules.
“This makes clear the need to reform the fiscal framework to enable the government to do what is needed for the economy in a fiscally sustainable way.”
NIESR expects two interest cuts this year and average living standards to improve by around 6% in the tax year 2024/25 though this will likely be too late for the current government given the lead in the polls for Labour.
Middle-income households will do even better with a 7%-8% improvement, though the poorest sections will see a further decline of around 2%.