The government will need to introduce tax increases to raise more than £40 billion a year to weather the impact of the Covid-19 pandemic, a think tank has warned.

The Institute for Fiscal Studies (IFS) said it is “all but inevitable” with borrowing set to reach levels not seen before during peacetime. The government has so far borrowed over £200bn to fund its fight against the impact of coronavirus.

In its report for the Autumn Budget, which was scrapped by the Chancellor Rishi Sunak, the IFS said the economy would be 5% smaller than expected in 2024-25, and the government would suffer a £100bn shortfall as a result of lower tax revenues.

It also said that national debt will be larger than the entire economy by 2024-25.

Despite describing tax rises as inevitable, the IFS has warned the government not to introduce them yet. It has insisted the government needs to do everything it can to support the economy through the pandemic, and potential trade issues with the EU.

Paul Johnson, director of the IFS, 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.”