UK Tax Rise Inevitable Says Economic Think Tank

by Jason Gorringe, Tax-News.com, London

28 July 2003

Chancellor of the Exchequer, Gordon Brown, will have no choice but to raise UK taxes at some point in the next few years in order to address a widening fiscal gap, the National Institute of Economic and Social Research has predicted.

Many observers have criticised the Chancellor's economic growth forecasts for being over-optimistic, and slower growth will mean the Treasury will receive less in tax revenues over the coming years. This will not only lead to higher rates of government borrowing, according to the think tank, but taxes will have to rise to cover expenditure.

"If he wants the levels of spending he is projecting then taxes have to increase to pay for it. The question is simply when they go up," NIESR's director, Martin Weale, observed.

However, the Chancellor is likely to be able to show a balanced budget over the economic cycle due to the system employed by the Treasury for reporting the nation's accounts. This is largely due to the high levels of tax revenue received in the late 1990s Mr Weale revealed, although he added that it will mean that Brown will have to deal with deficits of around £40 billion per year for the first three years of the next economic cycle.

The NIESR has forecast that the borrowing requirement will be £34 billion next year, rising to £40 billion in 2005, which will mean that the UK breaches the EU Growth and Stability pact. The Institute has also lowered its growth forecast to 1.9%.

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