Liz Truss's plan for tax cuts to boost economy 'a gamble at best', says leading think tank

The IFS has warned that the prime minister is putting the public finances on an "unsustainable path" with her plan to slash taxes while increasing borrowing to fund energy support packages.

Liz Truss is putting the public finances on a "unsustainable path" with her plans to slash taxes while capping energy bills, a leading economic think tank has warned.

The Institute for Fiscal Studies (IFS) has calculated that the combination of higher spending and tax cuts means government borrowing is expected to hit £100bn a year - more than double the official forecasts last March.

With debt potentially set on an "ever-rising path", the IFS said the prime minister's repeated claims that reducing tax rates would lead to sustained economic growth was "a gamble at best".

IFS deputy director Carl Emmerson said: "Under the new prime minister's plans, the fiscal targets legislated in January would be missed and while we would get to enjoy lower taxes now, ever-increasing debt would eventually prove unsustainable."

The warning came just hours after Ms Truss told bosses of American multinationals that her tax cuts are "just the start" of a long-term plan to "simplify" Britain's taxes as she tries to lure investment.

As well as reversing the hike in national insurance contributions and scrapping a planned increase in corporation tax, it has been reported that the stamp duty could be cut when Chancellor Kwasi Kwarteng sets out his mini-budget on Friday.

Ms Truss told leaders of firms including Google, Microsoft and JPMorgan Chase that the chancellor would be laying out "simplification" measures that would "get more businesses going in the UK" and also "encourage more people to go into work".

"While this is just the start, our long-term plan is to simplify Britain's taxes and to make us a better place to invest and be unashamedly pro-business," the prime minister said, according to a transcript provided by Number 10.

The chancellor is also due to lay out the expected costs of the energy price freeze - to be funded by government borrowing - in his fiscal statement on Friday.

The IFS said the final bill for the energy price cap was "highly uncertain" but could be £100bn over the next two years.

It was also announced today that wholesale energy costs for businesses will be slashed by up to half their expected price through the winter months - in a move expected to cost tens of billions of pounds.

Meanwhile, the reduction in revenue from the changes to national insurance and corporation tax will cost the exchequer around £30bn a year.

At the same time, rising inflation is pushing up spending on debt interest as well as state pensions and most working age benefits, while Ms Truss has also pledged to increase defence spending to 3% of national income by the end of the decade.

As a result, the IFS said that even after the energy price guarantee is assumed to have expired in October 2024, borrowing would be running at around £100bn a year - more than £60bn higher than was forecast in March.

At around 3.5% of national income, that would leave borrowing nearly double the 1.9% it averaged in the 60 years to the global crash in 2008.

Almost half this increase would be due to the tax cuts - while if they do not go ahead the current budget would be forecast to remain in balance, the IFS said.

Ms Truss has faced criticism that her tax cuts will disproportionately benefit the rich - but she told Sky News she is willing to be 'unpopular' in order to get the economy growing again.

However, the IFS said she "should not underestimate the scale of the challenge".

The think tank said: "There is no miracle cure, and setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble, at best."