The think tank has published its Green Budget 2018 report, in association with ICAEW and Citi. This argues that delivering on promises to increase spending on the NHS, defence and aid, and avoiding cuts to other public service would require an additional £19bn a year by 2022–23 relative to current plans. It would still leave social security cuts worth £7bn working their way through the system.

While borrowing this year might be around £5bn lower than the Office for Budget Responsibility’s (OBR) spring forecast of £37bn, and by 2022–23 might be around £6bn lower than the forecast of £21bn, this would not be enough in itself to fund ‘an end to austerity’.

The IFS also says that, even ignoring the likely hit to tax revenues from leaving the EU, there is likely to be virtually no ‘Brexit dividend’ by 2022–23. Net savings on contributions to the EU could be less than £1bn a year by then, and the need for new spending on administration - for example, on border security - could easily exceed this saving.

The Green Budget suggests one way to increase spending while still bringing the deficit down is to raise taxes. However, raising tax revenue by 1% of national income (enough to cover £19bn in new spending) would put the tax burden in the UK at around the highest level seen in the post-war era.

It says one way to do this would be to add one percentage point to all income tax rates, all national insurance contribution rates, and the main rate of VAT. Such an increase would still leave the UK’s tax burden ranked near the middle of OECD countries.

Other potential options include making entrepreneurs relief much less generous; no longer forgiving capital gains tax on death; and charging employee national insurance contributions (NICs) on earnings of those over state pension age, as well as a low rate of NICs on private pensions in payment. The report also advocates changes to the treatment of accumulated pension pots which are bequeathed.

However, the IFS cautions against trying to raise substantial sums from those with high current earnings, pointing out that Labour’s proposals to increase income tax rates on all those with incomes over £80,000 would perhaps raise only about £2.5bn - less than half that could be raised from a 1p increase in main rates of income tax, or NICs or VAT.

Cancelling the planned cut in corporation tax from 19% to 17% due in 2019–20 would raise around £5bn in the short run, though less in the longer term.

Paul Johnson, IFS director and an editor of the Green Budget, described the Chancellor as facing ‘the toughest of circles to square’.

‘He could end austerity, as the prime minister has suggested. But even on a limited definition of what that might mean would imply spending £19bn a year more than currently planned by the end of the parliament.

‘An increase of that size is highly unlikely to be compatible with his desire to get the deficit down towards zero.

‘Alternatively, the Chancellor could stick to his guns on the deficit and leave many public services to struggle under the strain of a decade and more of cuts. He could reconcile these demands by raising taxes, and in principle there are plenty of good options, but the overall tax burden is already high by UK historical standards and he could be constrained by the lack of a parliamentary majority.’

ICAEW public sector director, Ross Campbell, said: 'Defence is just one of many areas with competing demands for greater public funding by the Treasury, driven by concerns about the affordability of current plans. While the government needs to balance these demands with its fiscal targets and its ambition to make the public finances sustainable in the longer term, we face treaty obligations and the first duty of any government is the security of its citizens. Hard choices will need to be made.'

IFS Green Budget: October 2018 is here

Report by Pat Sweet