The retirement age should be raised to 70 by 2015 in an attempt to address the country’s serious debt problem, the National Institute of Economic and Social Research said yesterday.

Ray Barrell, director of Macroeconomic Research and Forecasting at the think-tank, said: “We are stealing from our children if we do not address the debt stock. There either needs to be very significant tax rises over the next ten years, or we need to change the structure of the economy and get people to work longer.”

The institute said that the economic recovery would not be enough to mend the public finances, as it would be driven mainly by exports rather than consumer spending. Rising exports are “tax poor” for the Government, failing to inject as much money into the country’s coffers as a rise in consumer spending would.

Mr Barrell, who forecast that the debt stock could rise to 95 per cent of GDP and that the country is currently running a structural deficit of 6 per cent of GDP, also criticised politicians for failing to highlight how serious the problem is. “No politician we have seen so far has really faced the scale of the problem. It is vast.”

The think-tank also suggested that the Government would need to take additional measures to try to raise money, thereby cutting the structural deficit and long-term debt.

These proposals included increasing the standard rate of income tax from 20 per cent to 27 per cent; charging VAT on all items that are currently zero-rated except childrens clothes and food; cutting all government spending by 10 per cent, which could cost 30,000 jobs and freezing public sector pay for five years.

The institute welcomed recent Conservative proposals to freeze public sector pay for a year and raise the retirement age by 2020, but said it didn’t go far enough.

“A one year freeze on pay will do nothing,” Mr Barrell said.

Separately, the think-tank said that while the recession was over, the economy would not start to grow until the final three months of this year and underlined the possibility of a “double dip”. Simon Kirby, research fellow at the institute warned that the recovery would be fragile, saying that it was “entirely possible that there would be one or two quarters of contraction” next year.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum in Davos

• The Times MPC

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee