A huge tax raid on the British middle class will be needed to balance the books as national debt surges to levels not seen since the 1950s, economists have warned.
Higher taxes, tight controls on spending and new measures to boost jobs and growth are vital to prevent a catastrophic spiral as debt climbs to 120pc of GDP in coming years, the Organisation for Economic Co-operation and Development (OECD) said.
The rescue measures could include removing some tax exemptions and reliefs, hiking council tax for valuable homes, slapping inheritance tax on pensions wealth and cracking down further on tax evasion, the OECD said.
It also recommends scrapping the pension triple lock - which guarantees an increase of at least 2pc per year - and instead keeping state payouts rising in line with average earnings.
Net debt has already surged above 100pc of GDP for the first time since the 1960s after Chancellor Rishi Sunak launched an unprecedented spending blitz to cushion the blow from coronavirus.
A rise to 120pc is equal to about £2.4 trillion as a share of today’s economy.
Alvaro Pereira, of the OECD, said: “When the pandemic is over, it is very important to remind people that this led to a substantial increase in the debt. In terms of net debt we are expecting to go above 120pc of GDP.
“If there is no adjustment, debt sustainability will be an issue that has to be addressed. Fiscal prudence is something that, after the pandemic is over, will have to be addressed, and be a big focus of attention in the next few years.”
Tough action could keep national debt below 130pc of GDP, and eventually bring it back under 120pc by 2040.
Without any measures, the OECD forecasts the debt could hit more than 170pc of GDP over the next 20 years.
An equally powerful way to make the debt sustainable would be to boost economic growth and productivity, reducing the debt as a share of GDP.
Increasing businesses’ incentives to hire workers would be a start, the OECD said, as would training the unemployed in skills such as IT which are needed in the modern economy.
Predicting a fall in GDP of more than 10pc this year, Mr Pereira said: “We are witnessing an economic shock that we haven’t seen at least since the Great Depression.
“It is very likely, especially if higher unemployment becomes long-term unemployment, this will have a massive impact for the economy, scarring the economy and families for many years to come. It is very important to increase the incentives for hiring.”
Lowering childcare costs would also help more parents into work, while investment in digital infrastructure would help the UK close the gap with more productive economies.
A key risk is the level of lockdown facing the nation as the second wave of the pandemic panics politicians.
Mr Pereira said: “If they go much more severe, then the contraction will be bigger. On the other hand if we find next year a new treatment or a vaccine, the recovery could be faster."
“But if the pandemic lasts longer and we have other waves of the pandemic, like happened in 1918 until 1920, we could also have a recovery that is a lot bumpier.”