Gabriel Rozenberg, Economics Reporter
 
 
 
The Government will have to raise taxes by up to £17 billion a year from the middle of the next parliament or cut public spending to meet its long-term finance plans and pay for a growing National Health Service, a report has found.
The harsh fiscal tightening will be needed to bridge the future gap between government revenues and ever-higher spending. The sum is equivalent to a rise of more than 4p on the basic rate of income tax.

 
 
PricewaterhouseCoopers (PwC), which produced the figures, said that the Government had underestimated the coming growth in healthcare costs.

Its analysis came as the head of the National Institute for Health and Clinical Excellence (NICE) gave warning that patients face tougher rationing of treatments and restricted access to new drugs if health spending does not rise more than planned. It also comes after the news that Treasury projections buried in an obscure official document show taxes rising continuously for the next 50 years.

Even that increase will not be enough to balance the books because spending is projected to rise faster than revenues. Drastic measures would be needed to keep the national debt below the Government’s own 40 per cent maximum in the long term, PwC said.

If elections are held in 2009, as expected, the party that takes office will quickly face a tough choice between higher taxes or a spending squeeze. To close up the “black hole” in 2012, a fiscal tightening of around 1.3 per cent of GDP would be required — equivalent to a tax rise or spending cut of £17 billion in today’s terms, PwC said. The alternative would be to defer dealing with the issue for future generations.

The report estimates that putting the issue off would force a 1 per cent tightening in 2020 and a further 1.6 per cent squeeze in 2035.

John Hawksworth, the head of macroeconomics at PwC, said that the Treasury’s figures — which themselves pencil in a fiscal squeeze of 0.75 per cent of GDP in 2012 — did not factor-in the potential for health spending to soar.

Sir Michael Rawlins, head of NICE, said last week that healthcare spending would have to rise above 9.3 per cent of GDP in the future. “It is the elephant in the room, really,” he said.

A Treasury spokesman said: “The PwC figures are based on speculative assumptions and arbitrary scenarios that are likely to change over the long term.”