Professor David Miles, a top economist at the Office for Budget Responsibility (OBR), has issued a warning regarding the potential effects of additional tax rises on economic growth. He also highlighted public expectations concerning the state's capacity to provide services.
Miles, one of three senior members of the independent fiscal watchdog, stated that the UK economy might face increased costs from a higher tax burden. His comments, made at a policy conference, touched on public debt, the expense of raising taxes, and public demand for more state expenditure.
According to Miles, a significant fiscal challenge and a reason for rising debt is that the public has not adjusted its expectations for state services in line with reduced resources, which he attributed to poor productivity. He indicated that current tax and spending policies place the UK on an unsustainable path for debt levels, with OBR forecasts suggesting public debt could reach approximately 270 per cent of GDP by the mid-2070s under these conditions.
Miles cautioned that while taxes could be increased to manage debt as a share of GDP, raising the tax burden beyond 37 per cent of GDP could lead to additional costs related to growth incentives. He explained that the cost of increasing taxes rises exponentially, making larger increments more expensive in terms of incentive distortions and economic efficiency.
He also noted that the outlook for public expenditure appears challenging, with defence spending projected to increase by up to 0.4 percentage points of the UK economy by 2030, equivalent to £11bn annually.