UK Taxpayers Facing GBP40bn In Tax Rises

by Robert Lee, Tax-News.com, London

17 July 2009

The next government, whatever its colour, will need to take fiscal action of around GBP100bn (USD164bn) in tax rises and spending cuts to correct the fiscal deficit, according to a new forecast by a leading economics consultancy.

According to the Centre for Economic and Business Research (CEBR) forecasts, tax rises of GBP20bn and spending cuts of GBP80bn will be needed if the Conservative Party takes power in the election set for next year, as seems likely. If the Labour Party holds on to power however, the think tank predicts that there will be GBP40bn of tax rises and GBP60bn of spending cuts.

The forecasts assume that the incoming government will need to get the budget deficit down to GBP50bn by 2014/15. Without fiscal action the forecasts predict a deficit of GBP158bn in that year because of sluggish growth.

The CEBR predicts that the UK economy will contract by 4.1% this year, but will return to modest rates of growth in 2010 and 2011 of 0.6% and 0.9% respectively.

Because the forecast predicts sluggish growth, tax revenues are expected to be weak and public spending on social programmes such as unemployment benefit is likely to increase.

Douglas McWilliams, one of the report’s authors and CEBR chief executive, commented: “From a Keynesian perspective, there is no need to rush for fiscal consolidation. But the political cycle is out of sync with the economic cycle and it is likely that any government – particularly a new one – will be forced by political necessity to announce its fiscal consolidation programme early while it is still possible to blame the need for it on the previous government.

“And it will look to achieve most of its results within a parliament,” he added.

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