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Public finances to see £100bn hit by 2024

Public finances will see a £100 billion hit by 2024 as a result of COVID-19 borrowing, according to a report released by the Institute for Fiscal Studies (IFS).

The report warns that even without excess spending, reduced tax income could see public finances hit by £100 billion. More pessimistic predictions could see Government borrowing “easily” exceeding £200 billion in that year.

A projected 5% reduction in the size of the economy has been attributed as the main reason for the financial hit.

The IFS warns that over the next 18 months, government policy needs to be focused on supporting the economy almost irrespective of short-term impacts on borrowing.

The institute said the current low cost of borrowing means additional spending now that helps to deliver a more complete recovery would almost certainly be worth doing, despite the claim by Chancellor Rishi Sunak last week that he would “always balance the books”.

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.”

He added:

“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.

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