In order to combat the current economic situation, a 7% increase in income tax and inclusion of VAT on previously exempted goods such as basic food and books is needed, says the thinktank of the National Institute of Economic and Social Research. In addition, the government should also consider increasing the state pension age to 70.

Stressing that these would be the only ways to plug the black hole in the present government finances, the thinktank also accused the leading political parties of refusing to acknowledge the huge scale of the problems which have been the immediate result of excessive borrowing.

"The choices we face are very stark and politicians are not facing up to it", said Ray Barrell, an NIESR economist. "We have to change the structural deficit or start stealing from our children".

Proposing two ways to deal with the current financial fiasco, the NIESR stressed that immediate measures were needed. The government could either raise the state pension age to 70 by 2015, thereby phasing out benefits for the over-60s; or the basic rate of income tax can be raised by 7%, public sector pays can be frozen for 5 years and VAT can be imposed on items that are currently exempted.

Martin Weale, director of the NIESR, said: "Unless these deficits are addressed, the country will go on getting poorer and poorer, and people will eventually wonder why there isn't enough money for their pensions".

In the wake of the situation, all major parties are now accepting the need to manage the financial mess. Also, the Tories have proposed raising the state pension age age to 66 starting 2016.