UK May Have To Raise Income Tax By 5%

by Robert Lee, Tax-News.com, London

18 September 2008

The National Institute of Economic and Social Research (NIESR) has warned that the UK government may have to put up income tax by 5% as a result of the current economic slowdown.

In a statement issued on Tuesday, the NIESR highlighted the urgency of the situation, predicting that if the government did not increase tax, public spending would have to slashed by up to GBP20bn in order to relieve the pressure on the government's budget.

Issuing their warning on Tuesday, NIESR highlighted several areas where it thinks the government could make changes, including more efficient tax collection, and better control of benefit costs. The NIESR would also like the government to address tumbling house and share prices and the severe squeeze on consumer spending.

In a statement released on their website this week, two officials from NIESR, Ray Barrell and Simon Kirby, also warned that the long term impacts of the credit crisis and oil prices of around USD100 a barrel on the global economy will strain government resources across mainland Europe, and not just in the UK.

"Some of the increase in budget deficits we are seeing is structural, and adjustment will be needed. Public spending plans will have to be reduced in all countries, or taxes will have to rise," Mr Barrell commented, adding:

"In France and Germany spending will have to grow much less rapidly than planned, and be 3% lower than currently projected by 2010. The UK will benefit from the increased tax income from oil production, as long as it is maintained, but public expenditure plans will still have to be adjusted down by 2% by 2010.

"Once the dust from the economic slowdown settles the government will have to rethink its spending plans, and cut them by 3%," he concluded.

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