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The next government could struggle to fund public services because of the biggest debt challenge since the 1950s, according to a respected thinktank.

Whichever party wins the next election may be unable to fund key services if politicians are not transparent about the trade-offs they face, the Institute for Fiscal Studies (IFS) says in a new report.

Higher borrowing costs, as a result of increased interest rates, as well as low economic growth and both the Conservatives and Labour committing to reduce debt, leave the next government with little financial flexibility, the IFS adds.

It could be one of the most difficult parliaments for tax and spending since the 1950s, according to the report.

It says: “These challenges – unlike a conflict, pandemic or financial crisis – are entirely predictable.

“None can be meaningfully confronted by a government that wilfully ignores reality and the need to choose between difficult competing options.

“As tempting as it may be to engage in ‘cakeism’ – to seek to have the government’s fiscal cake and eat it – any party serious about governing after the election should resist the urge. The electorate surely deserves better than that.”

The government will have to achieve something that hasn’t been done in 20 years – tax takes and state revenue streams will have to rise to become greater than government outgoings.

This is more difficult at present with the current high debt interest payments and low growth forecasts.

Achieving debt reduction goals by raising taxes may also be politically unpalatable as the UK tax burden, the amount of taxes paid as a percentage of national income, is at a high not seen since the Second World War.

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What is fiscal headroom?

Potential budget cuts will be difficult, too, the IFS says – as living standards have been in a period of “record-long stagnation” and public services are “visibly struggling, and performing less well than they were back in 2010”.

But public services, except health, are to have an effective budget cut as funding isn’t being “sufficiently topped up”, the IFS said at the time of the autumn statement.

The thinktank says political parties need to “be honest with the public about the tough trade-offs they will inevitably have to make on tax and spending”.

“If they are promising tax cuts, let’s hear where the spending cuts will fall. If they are going to raise, or even protect, spending, they should tell us where taxes will rise,” IFS director Paul Johnson said.

“Or parties might think that further increases in government debt are justified: in which case they should make the argument for why debt should be rising.”

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The three key questions about the China spy case that need to be answered

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The three key questions about the China spy case that need to be answered

The government has published witness statements submitted by a senior official connected to the collapse of a trial involving two men accused of spying for China.

Here are three big questions that flow from them:

1. Why weren’t these statements enough for the Crown Prosecution Service (CPS) to carry on with the trial?

For this prosecution to go ahead, the CPS needed evidence that China was a “threat to national security”.

The deputy national security adviser Matthew Collins doesn’t explicitly use this form of words in his evidence. But he comes pretty close.

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In the February 2025 witness statement, he calls China “the biggest state-based threat to the UK’s economic security”.

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Six months later, he says China’s espionage operations “harm the interests and security of the UK”.

Yes, he does quote the language of the Tory government at the time of the alleged offences, naming China as an “epoch-defining and systemic challenge”.

But he also provides examples of malicious cyber activity and the targeting of individuals in government during the two-year period that the alleged Chinese spies are said to have been operating.

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Witness statements published in China spy trial

In short, you can see why some MPs and ex-security chiefs are wondering why this wasn’t enough.

Former MI6 head Sir Richard Dearlove told Sky News this morning that “it seems to be there was enough” and added that the CPS could have called other witnesses – such as sitting intelligence directors – to back up the claim that China was a threat.

Expect the current director of public prosecutions (DPP) Stephen Parkinson to be called before MPs to answer all these questions.

2. Why didn’t the government give the CPS the extra evidence it needed?

The DPP, Stephen Parkinson, spoke to senior MPs yesterday and apparently told them he had 95% of the evidence he needed to bring the case.

The government has said it’s for the DPP to explain what that extra 5% was.

He’s already said the missing link was that he needed evidence to show China was a “threat to national security”, and the government did not give him that.

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What does China spy row involve?

The newly published witness statements show they came close.

But if what was needed was that explicit form of words, why was the government reticent to jump through that hoop?

The defence from ministers is that the previous Conservative administration defined China as a “challenge”, rather than a “threat” (despite the numerous examples from the time of China being a threat).

The attack from the Tories is that Labour is seeking closer economic ties with China and so didn’t want to brand them an explicit threat.

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Is China an enemy to the UK?

3. Why do these statements contain current Labour policy?

Sir Keir Starmer says the key reason for the collapse of this trial is the position held by the previous Tory government on China.

But the witness statements from Matthew Collins do contain explicit references to current Labour policy. The most eye-catching is the final paragraph of the third witness statement provided by the Deputy National Security Adviser, where he quotes directly from Labour’s 2024 manifesto.

He writes: “It is important for me to emphasise… the government’s position is that we will co-operate where we can; compete where we need to; and challenge where we must, including on issues of national security.”

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In full: Starmer and Badenoch clash over China spy trial

Did these warmer words towards China influence the DPP’s decision to drop the case?

Why did Matthew Collins feel it so important to include this statement?

Was he simply covering his back by inserting the current government’s approach, or was he instructed to put this section in?

A complicated relationship

Everyone agrees that the UK-China relationship is a complicated one.

There is ample evidence to suggest that China poses a threat to the UK’s national security. But that doesn’t mean the government here shouldn’t try and work with the country economically and on issues like climate change.

It appears the multi-faceted nature of these links struggled to fit the legal specificity required to bring a successful prosecution.

But there are still plenty of questions about why the government and the CPS weren’t able or willing to do more to square these circles.

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Trump’s second term fuels a $1B crypto fortune for his family: Report

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Trump’s second term fuels a B crypto fortune for his family: Report

Trump’s second term fuels a B crypto fortune for his family: Report

The Trump family’s crypto ventures have generated over $1 billion in profit, led by World Liberty Financial and memecoins including TRUMP and MELANIA.

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SEC chair: US is 10 years behind on crypto, fixing this is ‘job one’

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SEC chair: US is 10 years behind on crypto, fixing this is ‘job one’

SEC chair: US is 10 years behind on crypto, fixing this is ‘job one’

SEC Chair Paul Atkins said the US is a decade behind on crypto and that building a regulatory framework to attract innovation is “job one” for the agency.

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