Tax rises inevitable, claims NIESR

Think tank predicts tax rises

Think tank predicts tax rises

Gordon Brown will have to raise taxes by at least £10 billion or 3p in the pound to keep the public finances afloat, according to a new think tank report.

The National Institute of Economic and Social Research (NIESR) suggests the combination of predicted GDP growth of two per cent this year, down from 3.2 per cent in 2004, weak consumer spending and stabilising income increases, will hit Treasury revenues.

At least £40 billion in extra revenue could be needed between 2005 and 2009, according to worst scenario predictions, the think tank says.

The institute expects the £8 billion deficit this fiscal year to increase to £12 billion during 2007-2008 – double the Treasury’s predictions of an average deficit of just over £4 billion a year.

And it warns that last week’s apparent re-jigging of Mr Brown’s much-heralded ‘golden rule’ – borrowing to invest over the course of the economic cycle – would not be enough to keep taxes down.

Total government borrowing is estimated at £140 billion from 2005 to 2009 – £28 billion more than the Treasury forecast in its March budget.

Ray Barrell, a senior research fellow at the NIESR, said: “Prudence suggests that if you have a deficit that large on the current balance you should raise taxes. Looking forward the fiscal position looks imprudent.’

Shadow chancellor George Osborne said today’s report was further evidence of the “mess in the public finances” – and clear indication that taxes would have to rise under Labour.

“This chancellor tried to build his reputation on fiscal prudence, but the mess in the public finances and last week’s fiddling of the golden rule prove that prudence is now dead,” he said.

“This is further evidence that no matter how hard he tries to cook the books, the chancellor can’t escape the fact that his excessive borrowing will lead to higher taxes.”