Does Jeremy Hunt have the cash to spend on tax cuts in his spring Budget next week? That’s the billion pound question that the Institute for Fiscal Studies (IFS) focused on during its pre-Budget briefing this morning, hosted by Director Paul Johnson and Deputy Director Carl Emmerson.

As Ross Clark notes on Coffee House, the latest rumours suggest that the Chancellor is pivoting away from an income tax, inheritance tax or stamp duty cut (the last of which is considered most desirable by economists, including those over at the IFS, due to how badly it distorts the housing market and weighs down growth). Instead he may be opting for another penny off employee National Insurance. But whatever is offered up, it is likely to only ‘offset a small proportion of the increase in tax that we’ve seen since 2019’ says Emmerson. He notes that relative to the 2018-19 fiscal year, taxes will now be ‘about £66 billion higher than what they would have been if we had preserved them at the same share of national income’.

In other words, even if Hunt gets the tax burden falling – which didn’t happen in the Autumn Statement – this is still set to be the ‘biggest tax-raising parliament that we’ve seen since the Second World War’. Yet these record levels of tax receipts still don’t fully cover day-to-day spending costs, which is why Hunt is set to meet his fiscal target – debt falling as a percentage of GDP in the medium term – by ‘a hair’s breadth’.

Even the ‘good news’ from the past few weeks is not really what it seems. The IFS forecasts that the outlook for borrowing costs will improve, coming in around £11 billion lower than last expected. But according to their calculations, the government is still borrowing a staggering £63 billion more than what had been forecast two years ago in Rishi Sunak’s last Budget as Chancellor, which did not factor in all the government support that would later be announced to address the cost-of-living crisis. Similarly, debt servicing costs are also expected to come in lower than the November forecast – the IFS estimates payments will be £10 billion lower than expected. But due to a surge in interest rates to tackle the inflation crisis, these payments are an ‘astonishing £55 billion higher than what was forecast in March 2020’, according to Emmerson.

All this leads the IFS to question this idea of ‘headroom’ for tax cuts or for more spending. That the government is spending a little bit less than recently forecast – but spending at record levels nevertheless – is not the same thing as building in meaningful room for long-term cuts or giveaways (interest rate expectations will remain ‘very volatile’ too, making it even harder to predict just how much money there really would be to fund tax cuts in this way).

As a result, the IFS recommends pausing any further tax-cutting measures until a full spending review can be conducted. It’s unlikely to be a popular idea with the Growth Commission down the street, which laid out its tax-cutting recommendations for Hunt this morning. But more importantly, it’s unlikely, in an election year, to be a recommendation that the Chancellor himself will adopt.

So where is the money going to be found for the next round of tax cuts? This was the biggest question for Johnson, who struggled to see what areas of public spending would realistically be cut to make room for more tax cuts. After taking into account the NHS workforce plan (which the IFS estimates will require growing the NHS budget by 3.6 per cent above inflation), commitments to overseas and defence spending and Hunt’s major expansion of ‘free’ childcare, it seems the unprotected areas will be subject to another round of cuts. These will roughly come in at 3.4 per cent, or another £20 billion, based on what the IFS estimates for what’s been announced by government so far.

Will that number grow in the Spring Budget, as the Chancellor looks for more money to cut tax? More importantly, is it believable? The IFS remains highly sceptical that the spending cuts announced this year would really be implemented by the next government, Labour or Tory led.

It’s why, Johnson suspects, the UK will ultimately lean into the higher-tax paradigm that’s been created since Covid. It’s what Hunt will avoid admitting, at all costs, when he reveals his Budget next week.