Gordon Brown may have to raise taxes by £10 billion and slash another £10 billion from public spending to meet his fiscal rules over the next five years, an independent think-tank reports today.

The report by the Institute for Fiscal Studies (IFS) casts doubt on the strength of the legacy that the Chancellor will leave if he moves to No 10 as expected this summer. It argues that the improvements in the public finances over the past decade are less impressive than than those of most of Britain’s economic rivals. It also estimates that tax revenues have risen over that period by the equivalent of £1,300 a family.

In its annual “green budget”, the IFS says that Mr Brown has pencilled in a £20 billion cut in the growth of public borrowing, financed equally by taxpayers and departmental austerity. His PreBudget Report contains plans for public spending as a share of national income to fall by 0.8 per cent, equivalent to £10 billion in today’s terms, as well as an increase in the tax burden of the same amount. That would be the “tightest squeeze on spending” for a decade, the IFS says.

Over the three years covered by the 2007 Comprehensive Spending Review, the report estimates that public spending will have to fall by 0.5 per cent of national income, or £7 billion. The report suggests that Mr Brown may be forced to compromise on his target of halving child poverty by 2011, which alone would cost £4.5 billion. Paying for that in full would force the Government to freeze defence and environmen-tal protection spending, and either cut education spending or allocate the NHS less than the minimum recommended by the Wanless review.

The Treasury plans suggest that “fiscal drag”, in which rising incomes gradually propel more people into paying higher rates of tax, will be enough to raise the £10 billion in extra tax revenues that will also be needed to plug the fiscal gap.

The IFS report argues that Mr Brown will leave the public finances “stronger than he found them a decade ago”, but it puts the achievement in context. “The improvements in debt, borrowing and structural budget balances have occurred when most other industrialised countries have also been strengthening their public finances — indeed, many more so,” the report reads. “Out of the 22 OECD countries for which we have comparable data . . . 15 reduced their debt and 17 improved their structural budget balances by more than the UK between 1996 and 2006.”

A Treasury spokesman said: “These figures are incorrect, and it is ridiculous to suggest that families are worse off under this Government. As a result of personal tax and benefit measures introduced since 1997, households are on average £950 a year better off in real terms, and tax credits mean that three million families pay no net tax at all. The overall tax burden now and over the forecast period is well below the peaks reached in the 1980s.”