OECD Warns That UK Taxes Will Have To Rise

by Robert Lee, Tax-News.com, London

02 December 2004

Further doubt has been cast on UK Chancellor of the Exchequer, Gordon Brown’s fiscal management after the OECD warned this week that the United Kingdom will need to raise taxes next year to counter rising levels of public borrowing.

The OECD’s assessment of the UK public accounts is shared by many economists and experts, who believe that Brown’s forecast for economic growth of 3% next year is over-optimistic, whilst his borrowing projections also fall short of the mark.

In short, this will leave the Chancellor with the choice of raising tax or cutting public spending.

“The government deficit is likely to be above 3 per cent of GDP (gross domestic product) in 2004, and in the absence of a spontaneous rise in taxes, additional action may be required to achieve a decisive and sustainable reduction,” observed the OECD in its twice-yearly assessment of the world economic outlook.

Despite rising corporate tax receipts brought about by increased company profitability, and higher revenues from fuel tax as a result of fast-increasing oil prices, the OECD warned that these sources of additional taxes will not be enough to make up the anticipated fiscal shortfall.

The Paris-based organisation concluded that a “further period of fiscal retrenchment was almost certainly needed” if Brown is to meet his self-imposed ‘Golden Rule’ of borrowing only to invest over the economic cycle.

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