TaxCorporate TaxBrown’s Budget may raise taxes

Brown's Budget may raise taxes

Next week's Budget will be chancellor Gordon Brown's seventh, and the speculation about what he might deliver has begun in earnest.

Although the lack of any earth-shattering news from Brown threatens to turn the speech into something of a damp squib, there is no doubt that a great deal by way of information will see the light of day.

John Whiting, tax partner at Big Four firm PricewaterhouseCoopers, claims the speech will be a short, sharp affair, with an abundance of bad news.

This could well be the case, and the most obvious example of this will be an embarrassing back down from his economic growth forecasts given in November. ‘For the second time in six months, he will have to admit that his previous forecasts for the economy were too optimistic,’ says Roger Bootle, economic advisor to Deloitte & Touche.

Brown can approach this in one of two ways: he could increase taxes again to fill the black hole, or he can increase public borrowing. It can be assumed he will do the latter.

But according to Bootle, this is not necessarily the case. He says that taxes will eventually have to be raised by as much as £7bn a year if Brown’s fiscal rules are to be met.

Rather than risk implementing this increase close to a general election, he may choose to do so much earlier. And with the Iraq war in full swing, he has an excuse to implement a tax increase to fund the effort – he has already given a theoretical blank cheque to the Ministry of Defence.

‘We expect only very modest tax increases of £1bn to £2bn. Possible sources of revenue include national insurance (again), stamp duty, personal allowances, and excise duty,’ says Bootle.

He could also earn some much needed cash on the so-called ‘environmental taxes’ of plastic carrier bags and an increase on levies charged for landfill.

While commentators have been quick to dismiss the possibility of the chancellor raising taxes further, this may not be the case. A combination of war and poor economic growth might force his hand.

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