Brown’s Cost Cutting Unlikely To Prevent Rise In UK Taxes, Experts Warn

by Robert Lee, Tax-News.com, London

15 July 2004

While Chancellor Gordon Brown’s three year spending plan, unveiled this week, aims to offset an increase in public expenditure with various efficiency savings, economists warn that taxes may still ultimately have to rise to meet the Treasury’s own borrowing rules.

Business initially praised Brown’s announcement that some 84,000 civil service jobs are to be axed as part of a £21.5 billion cost saving exercise.

However, according to observers such as Bill Midgley, president of the British Chambers of Commerce, the number scratches at the surface of the huge cost of manning the public sector.

"Although the job cuts sound impressive, we must remember that public sector employment has risen by 509,000 - or 10%- since 1998 and some 350,000 extra frontline public sector jobs are expected over the next three years," he commented in response to the Comprehensive Spending Plan, announced on Monday.

Although the Chancellor’s maths have so far stood up to scrutiny during his seven year tenure at Number 11, doubts still linger over Brown’s economic growth and tax revenue forecasts, considered by some as somewhat optimistic, and many economists remain convinced that he will be unable to stick to his self-imposed ‘Golden Rule’ of borrowing only to invest.

"The amounts he hopes to get from asset sales and civil service changes are quite huge and if he doesn't achieve them then he breaks the golden rule," HSBC economist John Butler told the Daily Telegraph, adding:

"We have heard these kinds of thing before and I have some doubts about whether he can achieve them. If not it brings forward the time he has to announce tax rises."

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