Gordon's Gamble 'Could Put Another 4p on Income Tax'

Article excerpt

Byline: PAUL EASTHAM

GORDON Brown will have to raise taxes by the equivalent of 4p in the pound because his Budget gamble is almost certain to backfire, experts warned yesterday.

A day after the Chancellor gambled that a combination of 40,000 Civil Service job cuts and a surge in economic growth would balance the nation's books, a leading think-tank disagreed.

The Institute for Fiscal Studies insisted Mr Brown was 'too optimistic' in forecasting an upswing and warned he would face a [pounds sterling]13billion shortfall.

To fill this gap, he would have to slash spending, substantially increase borrowing or raise taxes by more than [pounds sterling]6 a week for the average household after the next election.

The verdict is embarrassing as the institute is one of the most respected independent financial research groups. The Treasury itself relies on it as one of its main sources of advice.

At the heart of Mr Brown's problem is his promise to massively increase funding for schools and hospitals at a time when tax revenues from a slowing economy are sagging.

At a post-Budget briefing in London yesterday, institute director Robert Chote warned that the Chancellor was on course to enter Labour's third term of government 'running current deficits rather than surpluses'.

If he wanted to honour his promise to stick to his 'golden rule' on spending and borrowing, Mr Brown would need to announce tax increases of around [pounds sterling]13billion.

Under the rule, public borrowing should only be used for 'investment', not for running costs such as salaries and welfare payments.

Another institute expert, Christine Frayne, questioned the Chancellor's growth predictions, calling his medium-term forecasts 'too optimistic'.

Wednesday's Budget 'confirms our view that we will need to have an increase in tax to pay for (the Government's) spending plans', she added.

In a further blow, Miss Frayne's colleague Carl Emmerson said the institute calculated that the Tories would be able to carry out their spending plans without putting up taxes.

This was seized on by Shadow Chancellor Oliver Letwin, who declared: 'The IFS has confirmed that the Budget puts us on course for more tax rises if Labour is re-elected.

'Gordon Brown thinks he has been very clever and that he has shot the Conservative fox. In fact, by admitting to [pounds sterling]20billion of Government waste, he has shot himself in the foot.

'Never again will he be able to argue that cutting back the growth of public spending means reducing front line services,' added Mr Letwin.

The row over the Civil Service job cuts escalated yesterday as City experts questioned whether they would produce the promised savings.

Mr Brown said the axe would fall hardest on the Department of Work and Pensions, where 30,000 will lose their jobs, with a further 10,000 moved out of London by 2008.

Customs and Excise will merge with the Inland Revenue, leading to 10,500 job losses and an additional 3,500 moving away from the capital.

On top of this 1,460 jobs will go at the Department for Education and Skills.

Some Whitehall officials believe the final toll will be closer to 90,000 jobs.

Despite the savings drive Mr Brown admitted in his Budget that the Government is borrowing [pounds sterling] 37billion this year - [pounds sterling]10billion more than he predicted a year ago. He also acknowledged that borrowing would remain high for some years to come.

Union leaders said the Civil Service cuts, unveiled without consultation, threatened a ' collapse in morale'.

Mark Serwotka, general secretary of the Public and Commercial Services Union, hinted that strike action was not being ruled out.

He added: 'Being told by the Chancellor on TV that you have lost your job is as bad as being sacked by text message. …