Tax Freedom May Slip By 3 Days For Over-Taxed Brits

by Jason Gorringe, Tax-News.com, London

16 April 2002

One day before the UK Chancellor Gordon Brown announces his budget for the 2002/03 financial year, left-leaning economic think-tank the National Institute for Economic and Social Research said that if the Government was committed to long-term hikes in benefits and public spending then it would need to implement a more "severe adjustment" of UK£18bn rather than the £5bn of taxe rises that the Chancellor is supposed to be planning.

The research, by Professor James Sefton of Imperial College London, aimed to establish whether the Government's spending plans balance over the economic cycle, and showed that based on known commitments on public spending and benefits, taxes would have to rise pounds by UK£5bn a year in perpetuity - equivalent to 1.5p on the basic rate of income tax.

And he said that if the new incomes-based tax credits Mr Brown has introduced - for working families, children and pensioners - were linked to wages rather than inflation this would cost UK£18bn, or 7p on income tax.

However, the headline UK£5bn was actually lower than the £6bn conclusion of a similar study carried out in 1998. Professor Sefton said this was because consistently higher-than-expected tax revenues had more than offset the extra commitments.

In contrast, Professor Sefton said the Chancellor did not need to raise new taxes to fund extra spending on the NHS. "I think he is very cautious as this increase in spending on the NHS to get it up to European levels has already been built in," he said.

Meanwhile the right-wing Adam Smith Institute is gearing up to calculate its famous 'Tax Freedom Day' as soon as the Chancellor makes his announcements. 'People keep asking me when Tax Freedom Day is,' says the ASI's Professor Eamonn Butler: 'Well, if you start working on January 1, you'd be working until June 10 before you had paid off the demands of the Treasury and could start working for yourself. But if Gordon Brown does no more than raise the money he needs for his existing promises, we'll have to work another three days for him. Tax Freedom Day won't come until June 13.'

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