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People will eventually have to pay higher taxes in order to pay for the economic rescue package rolled out by the government to deal with the coronavirus pandemic, a leading economic think-tank has warned.
Rishi Sunak, the chancellor, yesterday announced £30bn of extra spending in an attempt to boost the recovery.
In his analysis of the mini-Budget, the director of the Institute for Fiscal Studies (IFS) said the current recession was the “deepest in history”.
Paul Johnson said in “normal times” he would have been “taken aback” by the scale of the spending.
“The time to pay for all this will come. But not this year and not next,” he said.
“Our capacity to do so will depend above all on how the economy recovers.”
He added: “But let’s hold in the back of our minds that a reckoning, in the form of higher taxes, will come eventually.”
Johnson also said the more eye-catching measure unveiled by Sunak, a £1,000 bonus for companies for each employee they brought back from furlough, would effectively be wasted.
“A lot, probably a majority, of the job retention bonus money will go in respect of jobs that would have been, indeed already have been, returned from furlough anyway,” he said.
Speaking to BBC Radio 4′s Today programme on Thursday morning, Sunak admitted “without question” there would be what is known as “deadweight”.
“Throughout this crisis I’ve had decisions to make and whether to act in a broad way at scale and at speed or to act in a more targeted and nuanced way,” he said.
“In an ideal world, you’re absolutely right, you would minimise that dead weight and do everything in incredibly targeted fashion.
“The problem is the severity of what was happening to our economy, the scale of what was happening, and indeed the speed that it was happening at demanded a different response.”
The Resolution Foundation also said the policy would have a “significant deadweight cost” as most payments would “mainly going to firms who would have brought back those workers anyway”.
The think-tank said it would “not make a major difference to employment levels”.