Taxes ‘must rise by £20bn a year’

National Institute of Economic and Social Research says taxes amounting to 6% of GDP should be levied as soon as possible Taxes will need to rise by £20bn a year to offset the higher health costs and underfunded state pension commitments of the current generation of workers, according to a leading thinktank. Higher taxes amounting to 6% of GDP should be levied, starting as soon as possible, to prevent future generations suffering tax rises or cuts in services beyond anything contemplated by the Tory-led coalition government. The National Institute of Economic and Social Research (NIESR) warned that the total bill for pension and health costs for the UK’s rapidly ageing population will dwarf the government debts caused by the financial crisis and even the £800bn deficit built up over recent decades. It has said that the UK will need to find £7tn in taxes over the next 100 years on top of the taxes already expected, based on forecasts of growth, interest rates and inflation. A child born today will pay £68,000 more in taxes over their lifetime than they get back in pensions and health services. A child born in the next decade will need to pay £160,000 extra, the report said. It continued: “One might think that, in a steady state, the net contribution would be zero. However, there is a past history of pay-as you-go benefits, which has allowed earlier generations to receive more from the state than they have contributed over their lifetimes and it is inevitable that there is now a net contribution which has to be paid.” Martin Weale, one of the report’s authors and a member of the Bank of England’s monetary policy committee, has argued that each successive generation is taking more out of the economy than it puts back. He said that a lack of saving by individuals and the government was leaving younger workers to pick up an increasingly large bill for pension and health costs. Rocketing land prices, leaving accumulated wealth in the hands of the over-50s, have also meant that younger workers are paying higher mortgage bills than the baby boomer generation, those born between 1947 and 1964. Baby boomers will begin retiring this year and will all be receiving a pension by 2030. NIESR said that its attempt to produce intergenerational accounts for the UK was based on a rate of interest of 3% and the current outlook for the economy established by the government’s independent fiscal watchdog, the Office for Budget Responsibility. The accounts, which detail assumptions made by the authors on long-term trends, show that “on plausible assumptions about future spending pressures, taxes and spending will need to adjust by about 6-6.5% of GDP over time, relative to the projections, to bring the generational accounts into balance”. “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.” Tax and spending State pensions Pensions State benefits Tax Economics Budget deficit Financial crisis Public sector pensions Public services policy Phillip Inman guardian.co.uk

Posted by on March 15, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.