Chancellor Rishi Sunak will have to raise billions of pounds worth of taxes, reinstate austerity or ditch the Conservative party's new fiscal rules in his Budget next month, the IFS has warned.

In its pre-Budget analysis, the leading economic think-tank said the fiscal targets laid down by Mr Sunak's predecessor Sajid Javid in the election manifesto looked extremely difficult to meet.

Paul Johnson, director of the Institute for Fiscal Studies, said the most prudent course was to raise taxes.

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"We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas," he said.

"Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax."


The IFS - the country's preeminent experts on the state of the public finances - pointed out that even if Mr Sunak left policy unchanged, the government was likely to have to borrow £63bn next year - £23bn more than the most recent official forecast.

It added that, even if he spent no more in net terms at the budget, the chancellor may miss the Treasury's fiscal rule - that the budget for day-to-day spending should be balanced within three years.

The IFS suggested the new chancellor, who took over when Mr Javid resigned unexpectedly earlier this month, could allow fuel duty to rise, or could eliminate major giveaways such as Entrepreneur's Relief or the tax free lump sum people can take from their pension.

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"There are plenty of tax rises which would both raise revenue from better off individuals and improve the coherence of the tax system," said Mr Johnson.

"Top of the list should be the abolition of the misleadingly named entrepreneurs' relief.

"Other candidates include reforming council tax to increase charges on more valuable properties, and ending the ludicrously generous tax treatment of capital gains at death and of inherited pension pots."

The IFS pointed out that the gap between this budget and the last would be 499 days - the longest since at least 1900 - making this, the first Budget of the new Government, all the more important.

"This could turn out to be the most significant fiscal event in years," the IFS said.

The former pensions minister Sir Steve Webb also warned Mr Sunak against implementing a flat rate for pension relief for Britons.

He told Ian King Live: "You hear people bandying around £10m and saying how can we spend it, but that's 10 million people losing £1,000 each. This is a huge number of losers and is really complex."

Former pensions minister Sir Steve Webb told Sky News a flat rate of tax relief on pension contributions could be complicated.

Meanwhile, more than a dozen Conservative MPs have warned against raising fuel duty.

A total of 18 MPs, many of them elected for the first time in December, from the Blue Collar Conservatism group have written to the chancellor.

They say that "clobbering" voters - many of whom who would have backed the Tories for the first time in the recent election, would "send the wrong message".

Reports suggest Mr Sunak is considering ending the freeze on fuel duty rates, which has been in place since 2010.