Growth may save Brown in pre budget report

Wednesday, 10 December 2003 12:00 AM

The Chancellor is to claim that growth will save his spending plans in his pre-budget report today.

Gordon Brown has allowed spending to grow and debt to rise so as to put more money into services such as schools and the NHS. However, his pledge to run a balanced budget has been imperilled by the world economic downturn.

In previous statements the treasury suggested that increased spending can be met with the increased tax receipts that result from economic growth.

Analysts have since raised concerns that growth is too low to meet this aim, although the treasury forecast for two to two and a half per cent growth this year may now be met. The recent upturn also indicates that stronger growth can be expected next year, which may be enough to restore the Chancellor's credentials.

Any shortfall in growth may require either spending cuts, which the Government has rejected, or tax rises, which the opposition will condemn.

The Conservatives have recently attacked the Government over growing public debt. Oliver Letwin, the new shadow chancellor, will today take his first major opportunity to criticise any sign that tax the public will be hit by further tax hikes.

While Gordon Brown highlights economic stability, he may have to find money to cover £6.6billion of unexpected increases in public spending this year.

Unexpected rises range from the cost of peacekeeping in Iraq to the cost of organising the Queen Mother's funeral.

One area that may be used as a source of new funding is aviation fuel. Presently there is no VAT paid by airline companies on their fuel, which does significant damage to the environment.

Taxing this would provide the Government with a new windfall, and may appear environmentally friendly. However, it would be difficult for the Government to raise taxes on an industry that has had several bad years thanks to war and terrorist concerns.

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