Rishi Sunak

The Chancellor Rishi Sunak will have to raise taxes or break the government’s borrowing rules in order to meet the Conservatives’ manifesto pledges, the Institute for Fiscal Studies has warned.

Mr Sunak, who replaced Sajid Javid following Mr Javid’s shock resignation, will deliver his first Budget statement on 11 March.

During the election campaign, the Conservatives pledged to boost spending on the NHS, schools and social care. But with Mr Javid’s target of balancing the books by 2022, the government needs to raise extra funds.

The IFS suggested that breaking the government’s own rules on borrowing levels would undermine the credibility of any fiscal targets it sets, leaving tax rises as the only likely option. However, the party’s manifesto also pledged not to raise income tax, VAT or national insurance.

Based on existing plans, the IFS said borrowing is likely to be £23 billion higher than the latest official forecast. And that would casts major doubts over the government’s ability to hit the target set by Sajid Javid when he was chancellor.

IFS director Paul Johnson said that increasing borrowing “would not be sustainable in the long-term”. The organisation recommended ending the freeze on fuel duty as an alternative option, raising £4bn over the course of this Parliament.

Mr Johnson said: “They will allow him to increase investment spending, which will be welcome if well targeted. But they will not allow substantial increases in current spending, or tax cuts, to be funded by more borrowing.

“We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas.

“Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax.”

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