Analysis by the ITEM Club, the economic forecasting group sponsored by Ernst & Young, says taxes will have to rise again to finance a £10bn black hole.
The ITEM Club warned that the Treasury will have to raise about £10bn in tax revenues to finance unrealistic growth expectations, meaning an extra £170 per head.
This will pile more woe on taxpayers who have already been burdened by a 1% increase in national insurance contributions this year, exacerbated by a stagnant economy and sterile job market.
Released today, the ITEM Club said that growth rates of 2% to 2.5% for 2004 and 3% to 3.5% for 2005, as set out by the chancellor in his Budget speech, were unlikely to be met.
Rather GDP is expected to grow by 1.9% and 2.6% for 2004 and 2005 respectively, the ITEM Club said.
Peter Spencer, economic adviser to the ITEM Club claimed the chancellor was being unrealistic to expect a boom in tax revenues, as experienced in 2001.
‘He is likely to be disappointed. Our analysis has consistently said that this buoyancy was due to special factors like the boom in the stock market, ICT and top people’s pay which occur perhaps once in a generation,’ Spencer said.
The ITEM Club was also concerned about the impact of the diplomatic fallout of the UN on world trade following the unilateral action of the US and the UK in Iraq, although it did expect a revival in world trade and exports.
It did however share the Treasury optimism about a revival in company finances, but warned that growth would be held back by pension fund deficits.