Gordon Brown May Have To Introduce Deferred Taxes

by Caroline Maxwell, Tax-News.com, London

05 November 2001

Leading international accounting firm, PricewaterhouseCoopers warned on Thursday that the UK Chancellor may be obliged to introduce deferred tax increases if he is to achieve promised spending levels on public services.

According to PwC, the increases in health and education spending of 5% announced in last year's spending review would blow a £10 billion hole in the Chancellor's finances if extended beyond the 2003-04 fiscal year. The big five firm says that an increase in spending of around 3% per year, although 'unlikely to do much to improve the quality of public services in these two priority areas', is more plausible, but a tax hike would still be necessary.

Mr Brown's best bet, according to PwC analysts, is to defer the increases in tax to a more economically certain period. 'We would expect the Chancellor to prefer a phased increase in taxes to fund increased public spending, rather than to abandon the cautious approach to public finance projections that has served him well in the past,' the accounting firm observed.

Meanwhile, Ernst & Young have warned that the Chancellor should abandon all thoughts of tax increases, deferred or otherwise, arguing that the revenue and spending problems are only short-term concerns, and that tax hikes in an economic slowdown would be 'inappropriate'.

Douglas Fairbarn, E&Y's head of tax was forthright in his opinion of what Gordon Brown's next move should be, in a statement issued last week: 'I hope he won't raise taxes,' said Mr Fairbarn. 'I certainly hope he won't raise corporate taxes: that would throw away our current competitive advantage.'

The E&Y chief also made an impassioned plea for simplification of the tax system, saying: 'If he has any more complicated tax relief or credit ideas up his sleeve then he should keep them there. His priority should be simplification. He's got four more years to be flashy in.'

Recommended