The cost of public sector pay deals is also now on course to be more than £20bn, or 9pc, higher this year than predicted in October 2021 following Ms Reeves’s inflation-busting pay settlement.
Carl Emmerson, deputy director at the IFS, said that while there were “other options” besides tax rises to avoid a return to austerity, simply keeping spending frozen in real terms still implied a decline in spending per head.
He said: “To the extent to which a bigger population is putting pressure on services like justice and prisons, it would be a cut to real terms per-person spending.
“Some of the challenges we’re seeing, for example in prisons at the moment, would point to [another] top-up being needed.”
The IFS suggested that increasing day-to-day spending outside ring-fenced departments such as health and education in line with growth in the economy would keep more to the spirit of avoiding austerity.
However, this would require additional tax rises of £16bn in order to meet her fiscal rules in 2028/29, on top of the existing £9bn outlined in the manifesto, taking the total to almost £25bn.
This would represent a larger increase than the post-election tax rises in July 1997 under Labour and October 2010 under the coalition government, which were roughly £13-£14bn.
“On 30 October, a net tax rise of the scale of those two Budgets – or perhaps even bigger than that – does not seem out of the question,” the IFS said in its pre-Budget analysis.
It added that Ms Reeves had boxed herself in by pledging not to raise income tax, National Insurance, corporation tax or VAT as it suggested she may struggle to implement a tax rise on that scale.
Treasury officials have already raised concerns that a planned raid on non-doms and private equity managers could end up costing the Treasury money.
CGT raid ‘quite risky’
Paul Johnson, director of the IFS, warned the Chancellor to proceed carefully with any raid on capital gains, which already raises £15bn a year from just 369,000 people.
He said: “It needs to be a very careful reform, rather than simply taking the current system and increasing rates. That would not be a good idea [and] would be potentially quite risky.”
The IFS also warned that spending on disability benefits was on course to rise to £100bn before the end of the decade in a “problematic” development for the public finances.