Summary

• Fiscal crisis. The Chancellor faces a significant ‘fiscal black hole’ of around £30 billion by 2029-30. She will have to raise taxes or cut spending – or some combination of the two – if she is going to stick to the fiscal rules.


• Spending is the problem. Britain’s long-term fiscal imbalances are driven by spending growth that has outstripped both demographic demand and economic expansion. The state has grown from approximately 35% of GDP in the late 1990s to 45% today.


• Taxing the rich will not work. Increasing income tax on the highest earners
  would not generate the necessary sums. Significant hikes to capital gains tax would be an act of economic self-harm.


• Spending restraint is plausible. The fiscal rules could be met through spending restraint. Keeping overall spending increases in line with inflation until 2029-30 could improve the fiscal outlook by £40bn relative to current plans.


• The spending challenge. However, if cuts are focused on departmental
  spending, and NHS funding continues to grow in line with recent trends, cuts of 14% to non-NHS departmental spending would be required by 2029-30-a significant undertaking.


• Major reform is necessary. If we are going to ensure long-term fiscal
  sustainability as our population ages, we need significant reform of public services, the welfare state and the tax system. This is an agenda for an entire Parliament, not a single budget.

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