The UK would need to slash spending or raise taxes by $69 billion to keep its debt under control after deep tax cuts roll out, IFS says

• The UK needs to cut spending or raise taxes by 62 billion pounds to rein in its growing debt, according to the IFS.
• That amount is twice the size of the UK's defense budget, and would likely hurt the working class and economic growth.

The UK needs to slash spending or raise taxes by 62 billion pounds ($69 billion) to keep its debt under control after rolling out a plan to make deep tax cuts, according to the Institute for Fiscal Studies.

British markets were rocked last month after the government proposed a mini-budget, which called for 45 billion pounds in tax cuts. Since then, 2 billion pounds of tax cuts on high earners have been dropped from the budget, but the remaining tax cuts are still unfunded, and are likely to exert more stress on the UK as the government has ramped up spending this year to alleviate the pain of rising energy prices.

In the first quarter of this year, the country's debt-to-GDP ratio was already approaching 100%, which is regarded as the threshold for debt sustainability.

But the UK has doled out 68 billion pounds in energy spending, according to the IFS, with the proposed tax cuts worsening the outlook for debt.

"Soaring inflation has pushed up debt interest spending and depressed growth prospects. Substantial permanent tax cuts leave borrowing elevated and debt on a rising path as a share of national income, even after short-term expensive energy support for households and businesses is expected to expire," the IFS warned in a report on Tuesday.

Based on a 0.8% GDP growth forecast from Citigroup, the IFS estimated that UK borrowing would reach 194 billion pounds this year and 103 billion pounds from 2026-27, roughly double what was originally predicted in March for both years.

That means a 62-billion-pound spending cut or tax increase will be needed in 2026 to sustain the estimated debt – twice the size of the country's defense budget, according to Bloomberg. Even if the UK economy can grow a quarter of a percentage point more than predicted, it'll still require a 41-billion-pound spending cut or tax increase.

"So even reversing all of the permanent tax cuts in Mr. Kwarteng's 'mini-Budget' would not be enough," the IFS said.

Any spending cuts will likely be painful. The IFS report proposed that 13 billion pounds could be cut from working age benefits, and 14 billion pounds could be cut from national investment spending, though it would likely hurt Britain's working class and hamper the nation's economic growth. Another 35 billion pounds could come from cutting public services, though that would "be far from easy," the report warned.

"We need to avoid the situation Mr. Kwarteng wrote about in 2012 where 'in each new budget the government promised their books would balance tomorrow – but tomorrow never seemed to arrive'. The [government] should therefore be very wary of a promise to cut spending in four or five years' time without sufficient detail of where the axe would fall," the IFS added.