The Chancellor George Osborne should resist pressure to backtrack on the Government’s austerity measures, according to the Institute of Fiscal Studies.
It says: “Any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor conference the remainder of the fiscal consolidation plan will be delivered.”
The report calls on the Government to clarify how it sees the future of the tax system and the purpose and direction of major taxes.
It says: “Successive governments have failed to present a coherent tax strategy and tax policy making has suffered from a lack of direction, imposing substantial costs on the real economy.”
In November the IFS released the Mirrlees review, a comprehensive review of the tax system.
The report predicts that if the Office of Budget Responsibility’s growth forecasts are right the Government will borrow slightly less over the parliament than the OBR predicts.
But it admits there are risks in this assessment and that any improvement in public finances should be banked to guard against any future lack of growth or budget problems.