New Data Eases Fears Of UK Tax Hikes

by Jason Gorringe, Tax-News.com, London

26 April 2004

Preliminary data from the Office of National Statistics will come as something of a relief to Chancellor of the Exchequer, Gordon Brown, by suggesting that the public finances in 2003/2004 were not quite as bad as most analysts were expecting.

According to the data, the Treasury borrowed £34.8 billion in the previous fiscal year.

Whilst this was significantly more than the £22.7 billion borrowed in 2002/2003, it was £3 billion less than the Chancellor’s own prediction of £37.5 billion, and eases fears that the government will be forced to raise tax in order to meet Brown’s ‘golden rule’ of borrowing only to invest rather than service day to day expenditure.

Brown has faced a barrage of criticism from many organisations and businesses for relying on over-optimistic forecasts of economic growth and tax revenues, and sanctioning unsustainable levels of public spending in delivering his economic policy.

One such critic has been the Institute of Fiscal Studies, whose director Robert Chote said shortly after the March budget statement that: "We remain unconvinced that tax revenues will rebound strongly enough to deliver the improvement the Chancellor is looking for."

The IFS chief went on to forecast that the Chancellor will still need to increase tax in order to fund the government’s spending plans.

The IMF has also warned the Chancellor may have to broaden the tax base or increase rates of VAT in order to meet the Golden Rule.

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