Brown May Raise Taxes By £11 Billion As Golden Rule Missed

by Robert Lee, Tax-News.com, London

28 January 2005

The UK’s Chancellor of the Exchequer, Gordon Brown will have to raise an additional £11 billion in tax revenues next year in order to plug a hole in the public finances, think tank the Institute of Fiscal Studies has argued.

In its annual green budget, the IFS stated that it believes Brown will need to increase taxes by the equivalent of 4p in the pound on the basic rate of income tax to successfully meet his self-imposed ‘golden rule’ of borrowing only to invest over the course of an economic cycle.

"To be reasonably confident of meeting the golden rule over the next cycle the government would need to announce fresh tax increases or cut its proposed spending," the report stated.

If the current economic cycle ends in 2005/2006, the IFS predicted that the Treasury will narrowly miss meeting its golden rule due to the Chancellor's over-optimistic estimates on tax revenue flows.

"As the Labour government's spending plans have now been laid down through to 2007-08, new tax increases look more likely,” the report added.

Some analysts argue, however, that the economic cycle in question has already ended, meaning that Brown can claim to have met the golden rule.

Nonetheless, according to the IFS, Brown is likely to increase taxes after this year’s general election, expected in May.

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