Chancellor hits back at Ernst & Young tax burden claims

The warning shot Item Club report published today claims that Brown last month commanded ‘a careless budget for an economy that could turn on a sixpence.’

Brown responded to the tax burden claims on BBC Radio 4 this morning by saying: ‘This is simply not true. The tax burden between this year and next year is actually falling. That is a fact.’

He dismissed the Item Club findings, which used the Treasury’s economic model, as ‘another pundits’ report.’The true figures are in the budget’, he added.

The Ernst & Young sponsored report argues that despite short-term growth and a ‘feel-good’ £15 billion budget surplus, rising income tax and falling investment could damage future prosperity.

Professor Peter Spencer, Item’s economic adviser, said: ‘Tax rates have fallen, but a large number of taxpayers are now paying more tax.’He said that the tax increase was due to ‘a number of allowances and tax breaks have been reduced or abolished.’

He added: ‘At bottom, however, it mostly boils down to the concept of fiscal drag: earnings have increased at double the rate of inflation.’

Shadow chancellor Michael Portillo commented: ‘The Item Club has shown that, despite their pre-election promises, taxes have gone up massively by stealth under Labour.’

Gordon Brown later today is due to outline details of the new pensioners’ tax credit in his James Meade Memorial Lecture at the London School of Economics.

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