Falling UK Tax Take Increases Chance Of Tax Hike Next Year

by Robert Lee, Tax-News.com, London

25 October 2004

Economists repeated warnings last week that Chancellor of the Exchequer Gordon Brown will be forced to raise taxes next year in order not to break his so-called ‘Golden Rule’, after the unveiling of some disappointing economic data for the government.

As a result of weak tax revenue figures, the Office of National Statistics announced recently that the UK government was forced to borrow £4.8 billion last month – double the amount borrowed in September 2003 – whilst government borrowing for the first six months of the year reached £22.57 billion, some two thirds of Brown’s £33 billion full year forecast.

Consequently, economists have warned that the Chancellor is now perilously close to breaching his self-imposed golden rule of borrowing money only to invest over the course of an economic cycle. If the golden rule is to remain intact, then taxes will soon have to rise, according to many observers.

Shadow chancellor Oliver Letwin was quoted by the Telegraph as noting: "The Chancellor talks about prudence but what he is delivering is a black hole in the finances that will lead to further tax rises as surely as day follows night."

Ernst & Young’s ITEM club, which uses the Treasury’s own economic forecasting model in its analysis of the UK economy, agreed with Letwin, observing:

“Strong economies can be expected to generate more tax, but this year tax revenues are likely to be £6 billion below Gordon Brown’s forecast. This can only mean tax increases very soon after the next election.”

Recommended