The chancellor may have to put up taxes again in this Parliament

Just how painful do experts think the fallout from the chancellor's Budget could become? ITV News Economics Editor Joel Hills explains

The Institute for Fiscal Studies (IFS) and the Resolution Foundation (RF) were both shouting as loud as they could before the general election about the fact that both taxes and spending on public services were almost certainly going to have to rise by much more than what Labour and the other political parties were saying in their manifestos.

Lo and behold it has come to pass.

In opposition, Labour refused to engage with the warnings. In government, it has seen the fiscal light.

Resisting the temptation to say "I told you so", both the IFS and the RF have broadly welcomed Chancellor Rachel Reeves' Budget as a serious and credible attempt to face up to significant challenges.

IFS Director Paul Johnson says the extra money the chancellor is raising could mean people notice improvements to public services in the next two years and should, at the very least, prevent them from deteriorating further.

The NHS is in line for the most significant slug of extra funding in cash terms.

The budgets for local government and Justice - both under severe pressure - get the biggest proportionate increases.

"It won't feel like Christmas for public services," Mr Johnson cautions, pointing out the extra spending is front loaded.

From April 2026, annual growth in day-to-day public spending is set to fall back 1.3% - an "implausibly low" level, according to the IFS director.

Beyond next year, the IFS estimates the chancellor will need to find £9 billion of additional money to avoid cuts to unprotected departments.

"That's not a very big amount of money," Mr Johnson told ITV News.

"But we may well not be out of the woods yet. Public spending pressures are such that more tax rises through this Parliament should not be ruled out.

"I'm not able to put a probability on that, but I certainly wouldn't rule it out."

IFS Director Paul Johnson told ITV News he 'certainly wouldn't' rule out future tax rises in this Parliament

The chancellor's decision to borrow in order to maintain government spending on infrastructure and investment was also praised on Thursday.

Richard Hughes, head of the Office for Budget Responsibility (OBR), confirmed the commitment will succeed in lifting economic growth "in the long run", if it is maintained.

The problem, as Mr Hughes puts it, is "the long run is a long way off".

With the economic benefits over the horizon, the outlook for living standards in the UK over the next five years is pretty grim.

The RF estimates the forecasts for growth, coupled with the tax and benefit changes announced by Reeves in her Budget, mean the average household is unlikely to be feeling much better off by the time of the next general election than they do today.

A rise in disposable income, adjusted for inflation, of 0.5% is unheroic.

As things stand, we are set for the second worst Parliament for living standards in modern history.

The good news is that would be a slight improvement on the last five years, but governments that struggle to improve livelihoods tend to run into trouble.

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