London Daily

Focus on the big picture.
Friday, Jul 17, 2026

UK economy cannot be fully protected, says IFS

UK economy cannot be fully protected, says IFS

The UK economy cannot be "fully protected" as slower growth and higher borrowing leave it with record levels of debt, a think thank says.

The Institute for Fiscal Studies (IFS) said UK government borrowing this year will hit a level never seen in peacetime due to the pandemic.

It said the state had pumped an extra £200bn into the economy to support jobs, businesses and incomes this year.

It said this was necessary, but meant big tax rises are inevitable in future.



To pay for the services it provides, the UK government borrows from investors around the world and the Bank of England, then tries to balance its books through taxes.

But in an update originally meant to accompany the chancellor's now scrapped Autumn Budget, the IFS said this would become harder as the crisis rolled on.

It said the economy was forecast to be 5% smaller in 2024-25 than was projected back in March, which would leave the country with a £100bn hit to its finances from lower tax revenues.

At the same time, it said "higher borrowing will be with us for some time to come".



The government will not, as the chancellor promised just a week ago, "always balance the books" and the Conservative manifesto commitment on lower debt is impossible, says the Institute for Fiscal Studies in its annual audit of the public finances.

Annual government borrowing this year will reach levels only previously reached during world wars, while the national debt will be bigger than the economy, reaching 110% of GDP by 2025.

However, the IFS warns that now is not the time for tax rises or spending cuts. The economy will continue to need support because of one of the worst pandemic hits to growth in the world, alongside the prospect of new post-Brexit trade barriers with the EU.

For now, extra borrowing is helped by extraordinarily low rates of interest paid by the government. But the IFS outlines a scenario where even significant tax rises, worth £40bn a year from the middle of this decade, will fail to get the size of the national debt below 100% of GDP.

Repaying the Covid support spending is, the institute suggests, going to be a delayed and then very gradual programme of tax-and-spend restraint that could last a generation.

Paul Johnson, director of the IFS, said the government had no choice but to ramp up spending in the short term, and there was little it could do "fully to protect the economy into the medium run".

"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."



The UK's national debt - how much it owes investors and lenders - rose above £2 trillion for the first time in August.

The think tank said it expects debt will be just over 110% national income by 2024-25 - meaning the government would owe more than what it brings in in taxes.

This would be up from 80% before the pandemic and 35% in the years leading up to the 2007-08 financial crisis.

The IFS said the UK had benefited from historically low interest rates during the crisis, which made it cheaper to borrow.

But it warned any increase in rates could, if not accompanied by stronger growth, be "hugely problematic for the public finances".



The forecast comes as the UK economy remains under stress. In an accompanying analysis, Citibank said every major economy bar China shrank in the first half of this year, mostly by historically large margins.

Spain and the UK did the worst, with output drops of roughly 20%, more than double the hit in the US or Germany.

The bank warned that even if another round of major lockdowns can be avoided, most economies will not return to pre-pandemic levels of output until 2021 or 2022.

And even when the pandemic is over, there will be lingering effects on consumer demand due to increased caution, shifts in behaviour and rising unemployment.

Citibank forecasts the unemployment rate in the UK is likely to increase to about 8% to 8.5% - or 2.7 to 2.9 million people out of work - in the first half of 2021.

That could see unemployment at its highest level since the early 1990s.

Newsletter

Related Articles

0:00
0:00
Close
For 36 Years, He Scammed About 300 Luxury Hotels — Until He Was Caught
Britain Nationalises British Steel to Protect Scunthorpe Production and Strategic Supply
Andy Burnham Takes Labour Leadership and Prepares to Become Britain’s Seventh Prime Minister in a Decade
Tech Companies Want to Move Computing Off Your Screen and Onto Your Body
White House Teleprompter Operator Earned More Than $100,000 From Bets Linked to the President's Speeches
French Prime Minister Survives No-Confidence Vote After Controversial Budget Cuts
European Commission Opens Excessive Deficit Procedure Against France
French Senate Blocks Key Immigration Reform Measures
French Government Pushes EU Action Against Ultra-Fast Fashion Imports
French Parliament Debates Expanded Autonomy Powers for Corsica
France Reopens Autonomy Talks With New Caledonia After Months of Unrest
Bordeaux Wine Producers Seek Three Hundred Million Euro Aid Package After Export Collapse
French Farmers Block Spain Border Crossings Over Imported Food Competition
Cannes Film Festival Bans Fully Artificial Intelligence-Generated Films From Competition
TotalEnergies Shifts More Than Three Billion Euros of Green Investment From Europe to the United States
LVMH Chief Executive Bernard Arnault Presents Succession Plan for Luxury Empire
Kering Reports Fifteen Percent Revenue Drop as Chinese Luxury Demand Weakens
Sanofi Reports Positive Results From Messenger RNA Respiratory Vaccine Trials
France Places Energy Price Caps Under Review to Protect Households Through Winter
EDF Connects Two New Nuclear Reactors to France’s Electricity Grid
Mistral Secures European Commission Contract for Sovereign Artificial Intelligence Models
Renault Opens Next-Generation Electric Battery Plant in Northern France
Air France Signs Two Billion Euro Sustainable Aviation Fuel Deal to Cut Emissions
Marseille Launches Three Billion Euro Port Expansion to Strengthen Mediterranean Trade Role
French-Owned Ubisoft Announces Global Restructuring With Nearly One Thousand Job Cuts
National Railway Operator Suspends Artificial Intelligence Ticket Pricing System After Consumer Backlash
United Kingdom to Ban Sales of High-Caffeine Energy Drinks to Under-Sixteens
Home Office Designates Iranian and Russian Paramilitary Groups as National Security Threats
National Health Service Launches Housing Plan to Retain London Healthcare Workers
British Heatwave Fuels Wildfires and Emergency Evacuations in Scotland
United Kingdom and Estonia Sign Defence Agreement to Strengthen NATO’s Eastern Flank
United Kingdom Cuts Bilateral Aid to African Nations by More Than Eighty Percent
Bank of England Overhauls Banking Rules to Encourage More Lending to Businesses
United Kingdom and India Free Trade Agreement Enters Into Force, Reshaping Bilateral Economic Ties
Andy Burnham Confirmed as New Labour Leader and Prime Minister-Designate
UK Government Faces Pressure Over Extreme Heat Workplace Rules
Lewisham Council Blocks Cooperation With Home Office Immigration Enforcement
UK Parliament Investigates Growing Pressures on Scotch Whisky Industry
Teen Hackers Sentenced Over Thirty-Nine Million Pound Transport for London Cyber Attack
Ministry of Defence Acquires Scottish Fuel Terminal to Strengthen Royal Navy Operations
Bank of England Eases Rules as Economic Growth Remains Weak
Bank of England Governor Warns Andy Burnham on Britain’s Long Economic Stagnation
UK Defence Ministry Buys Scottish Fuel Terminal to Secure Naval Energy Supplies
UK Secures Access to European Defence Contracts Through Ukraine Support Deal
Bank of England Plans Easier Capital Rules to Encourage More Lending
Met Office Says England and Wales Have Already Broken Summer Heat Records
Counter-Terrorism Police Lead Investigation Into Murder of Former Minister Ann Widdecombe
UK Government Nationalises British Steel to Protect Domestic Steel Production
French National Assembly Overrides Senate to Pass Historic Assisted-Dying Legislation
Spanish Prime Minister's Wife Ordered to Stand Trial as Corruption Probes Encircle Governing Party
×