The Government may have to impose spending cuts on public services by the middle of this decade if Liz Truss and Kwasi Kwarteng’s tax-cutting gamble does not lead to growth, experts have warned.
The £45bn spree announced by the Chancellor will be funded by borrowing, fuelling government debt.
MPs and economists said ever-rising debt would be unsustainable within a few years unless Mr Kwarteng’s 2.5 per cent growth target for GDP was met.
Mel Stride, the Tory chairman of the Treasury select committee, said it was “in the Tory DNA to get taxes down” but told BBC News: “I do think there will be some concern … about how fiscally realistic the measures are that are being brought forward, how easily are we going to be able to get the growth rate up … [so] we can fund those tax cuts.
“Because if we don’t do that, we are going to have to either unwind this tax policy, or we’re going to have to try and borrow more, or we’re going to have to try and cut spending. It could lead to some very difficult choices further down the line.”
Paul Johnson of the Institute for Fiscal Studies said: “It is possible that economic growth will be higher than expected, either through luck or through concerted policy reforms across government.
“But on current policies it is more likely that, at some point, today’s tax cuts will need to be paid for by future tax rises or spending cuts.”
On Thursday, Torsten Bell, chief executive of the Resolution Foundation, told the Commons Treasury select committee that if debt rises over the next few years due to tax cuts being funded by borrowing, then public spending cuts were inevitable.
He said: “My judgement based on history is that it takes us to cuts in public spending and in particular cuts to public sector investment.”