PwC Report Says UK Taxes Will Have To Rise

by Jason Gorringe, Tax-News.com, London

10 July 2002

When newly appointed Chief Economic Adviser at the UK's Department of Trade and Industry, Vicky Pryce, claimed last week that is is becoming increasingly likely that the government will need to increase taxes further in order to meet its spending commitments on public services, government officials rushed to emphasize that Ms Pryce, who assumes her position with the DTI in August, was speaking in a personal capacity. She described public services as a 'black hole' into which the government was pouring money.

Yet a report issued yesterday by PricewaterhouseCoopers says that taxes will probably have to rise by UK£12bn a year, the equivalent of an extra 4p on the basic rate of income tax, if the government is to meet its ambitions to improve health and other services in the next parliament.

PwC points out that the public spending plans set out in May's Budget show spending rising by about UK£20bn a year at today's prices between the current year and 2005-06, which covers only the first five years of the rise in health spending recommended by Derek Wanless's report on the service. The report, which was largely accepted by the government, proposed a 10-year catch-up phase to lift Britain's health spending into line with the "world class standards" hoped for by the government.

Gordon Brown is due to unveil the 2002 Spending Review in parliament next Monday, and it's likely to include significant rises in expenditure on education and skills. PwC estimates that the extra spend in the next 5 years will take borrowing hard up against the Chancellor's self-imposed limit, meaning that the second 5 years of the catch-up period will inevitably have to be financed by higher taxation.

"Gordon Brown has already accepted the Wanless report's first five years, and the principle of long-term catch-up with the highest European standards," said John Hawksworth, PwC's chief economist. "If the government want to continue the momentum of the current policy direction, they are going to have to think about further tax rises around 2006, probably in the first years of the new parliament."

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