Tax Slump Plunges Britain Into Biggest Deficit Since World War Two

by Robin Pilgrim, LawAndTax-News.com, London

21 October 2008

The UK government has recorded its biggest budget deficit since World War II, making public spending uncertain and future tax increases inevitable, according to economic analysts.

A record deficit of GBP37.6 bn for the first half of 2008 was announced on Tuesday, making it the highest fiscal deficit in Britain since 1946, when the first figures were recorded.

Much of blame for the shortfall in revenue has been pinned on current economic conditions, with the housing market crash costing the government billions of pounds in taxes which are no longer being reaped from the property market.

The downturn in profits for businesses means corporation tax is no longer generating the income it used to for the government. Meanwhile, further deficits are expected as the Chancellor of the Exchequer, Alistair Darling, grapples with the reality of having to stretch an already exhausted budget even further to cover the looming rise in unemployment.

Experts are now predicting that, despite the introduction of a number of revenue-boosting measures over recent months, the government's only option for long-term improvement is to raise taxes and cut back on public spending.

So far this year, Darling has attempted to stem the growing deficit with a number of tax-related measures.

Firstly, in an attempt to bolster the ailing housing market the Chancellor announced that, as of September 3, 2008, the stamp duty land tax threshold would be increased for purchases of residential property.

Later that same month, Mr Darling went on to revise his plans to increase Vehicle Excise Duty (VED) in 2009 after strong protests were lodged against his proposal from motorists. Under the changes, "gas-guzzling" cars were to pay more tax to compensate for the damage their vehicles contributed to the environment, with the payments backdated from as long as seven years ago.

Mr Darling has already pledged to concentrate his efforts on creating greater opportunities for employment in the UK, and it is thought that he will make use of the upcoming pre-budget report to detail how he intends to do so, as well as lowering government revenue targets for 2009.

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