National debt could reach more than £2.3 trillion and unemployment 3.8m, according to a worst case scenario created by the Centre for Economics and Business Research (CEBR) and the TaxPayers' Alliance (TPA).
The organisations used economic modelling that assumed a slower, shallower recovery than the Treasury has predicted and a more pessimistic 'double dip' recession. The CEBR also tested the impact on public finances, economic growth and unemployment of the proposed 50p tax rate and other possible tax rises.
The exercise found that although the government predicts national debt of £1.54 trillion by 2013-14, even the more optimistic scenario saw it reaching £2.1 trillion, with unemployment reaching 3.2m.
On public spending and debt repayment, the organisations found that the Treasury's expectation that government debt should begin to decline as a share of GDP by 2017-18 would be proved wrong not just in the pessimistic scenario but also under CEBR's moderate forecasts in which central government spending would need to be reduced by £45bn to achieve this.
As for tax rises, the research showed that the 50p tax rate alone would reduce economic growth by 0.4 per cent of GDP, increase public borrowing by £1.8bn a year and increase the base unemployment rate by 0.8 per cent by 2020-21. And if other rises happened, such as increasing the basic rate of income tax to 25 per cent, the higher rate of income tax from 40 to 50 per cent and the rate of corporation tax to 31 per cent, this would raise an extra £15bn a year in the first three years but would eventually end up costing the Treasury £33bn a year by 2020-21.
The CEBR's chief executive Douglas McWilliams said: "We [found] that the 2009 Budget took no serious action to control public borrowing – which is only a sustainable path under the most optimistic assumptions for growth. The most likely outcome is for the government to be forced into implementing major public spending cuts during the next parliament."
Matthew Sinclair, research director of the TaxPayers' Alliance, added: "The Treasury has a track record of overly optimistic economic projections in order to make their sums add up. If they are wrong about the length and depth of the recession, then taxpayers will be landed with an even bigger national debt bill and even higher unemployment. The government must come clean about the economic prospects and cut back spending or our economic recovery will be hobbled by the burden. It was wrong for them to overstate the health of the public finances when times were good, but now we are in a crisis we need honesty and realism to avoid a disaster."