Taxes 'must rise by £82bn a year to pay for future costs'

16 Mar 11
Taxes in the UK need to rise by £82bn a year to balance the costs of future health care and unfunded pensions, according to a leading economic think-tank.
By Lucy Phillips


16 March 2011

Taxes in the UK need to rise by £82bn a year to balance the costs of future health care and unfunded pensions, according to a leading economic think-tank.

A report by the National Institute of Economic and Social Research, published last night, says tax rises amounting to 6%–6.5% of gross domestic product should be implemented ‘over time’ to avoid future generations paying significantly higher taxes than today or further public service cuts.

The study, Generational accounts in the United Kingdom, shows that over-65s have received more than £220,000 back from the state than they have paid in. By contrast, children born today will pay over £68,000 more in taxes than they get back in public services or benefits over their lifetime. A child born in the next decade would need to pay £160,000 extra.

The think-tank’s suggested tax rise would plug the ‘intergenerational budget imbalance’.

The report says: ‘If those alive now are expected to make a negative net contribution – as is the case for the UK – then those to be born must make a positive one. So eventually taxes will have to rise, or spending fall.

‘This is mostly driven by the upward pressure on spending, especially pensions and health, resulting from demographic pressures. It is not driven primarily by the rise in the national debt resulting from the recent recession, which has had a relatively modest impact on fiscal sustainability for the long term. If there was no national debt at all, the required rise would still be 5.5%–6% of GDP.’

The projections are based on the Office for Budget Responsibility’s economic forecast for the June 2010 Budget and do not take into account any polices likely to arise out of Lord Hutton's recent review of public sector pensions.

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