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£6 billion tax bombshell


BRITS face £6 billion of tax hikes WHOEVER wins the election - top economists warned last night.

Three of the country’s leading economic and business groups accused Labour and the Tories of not coming clean with voters about the pain they faced.

And they warned VAT, Income Tax and further National Insurance increases could be in store whether Gordon Brown or David Cameron is in charge.

There is a £70 billion black hole in the nation’s finances because the government spends far more than it gets in tax revenues.
The shortfall must be made up from a combination of public spending cuts and tax increases.

But the respected Institute for Fiscal Studies, the Institute of Directors and the Centre for Economic and Business Research all warned of huge tax hikes - as much as £6 billion.

They said VAT could be extended to food, books and children’s clothes. And more people could be dragged into higher Income Tax brackets.

Robert Chote of the IFS said: "If the government is right about the scale of the fiscal repair job they want to do, that will cost about £70 billion a year.
"It will be a combination of public spending cuts and tax rises. But they haven’t yet told us about those tax rises.

"Both parties would need to announce further tax increases to get the numbers to add up. They also need to have a spending review to explain where their spending cuts would come from.

"For Labour you are talking about £6 billion. The Conservative figure would probably be slightly smaller than that."

Mr Chote said there were a number of tax-raising options: "The bookies’ favourite is VAT. Labour has chosen to raise National Insurance in the past when they’ve needed a lot of money.

"If the Conservatives win, the last time a Tory government had to fill in a hole in the early 1990s, the Norman Lamont and Ken Clarke package was a 50/50 split between taxing and spending cuts. Whether Ken Clarke really thinks he can do as much with spending cuts as they claim is an interesting question."

CEBR senior economist Charles Davis underlined the £6 billion figure. And he said VAT and Income Tax were the areas to watch.
"There is no question that there will be tax rises," he said. "You can’t fix the deficit purely by cutting public spending.

"The more you can do with cutting spending the better. But you have got such a big structural deficit you are going to have to have tax rises as well. I wouldn’t argue with the figure of £6 billion."

He added: "What we have seen in the manifestos doesn’t actually go far enough towards saying what would need to happen.
"We need more clarity from the parties. But I suspect we won’t get it until after the election.

"The key thing is whether they push up VAT. They may also want to look at Income Tax as well. They could move around the income bands to move more people into the 40% tax bracket which would raise revenue."

The Institute of Directors also warned of big hikes. Chief economist Graeme Leach said: "Whichever party comes in there will be tax rises. I think £6 billion is a realistic figure.

"That doesn’t mean there should be, you could do it just by cutting spending. But the political reality is there will be spending cuts and tax rises."

He added: "The key difference between the two parties is the nature of the tax rises and the scale. The Conservatives will address the problem more by cutting spending than increasing taxes. But they will use indirect taxes. VAT is the best bet.

"I think Labour could look at Income Tax, but I don’t think the Conservatives would. It is difficult for the Tories because they haven’t seen the books. There are constraints. But there is a bigger reality. Politically all the parties would rather not talk about the big numbers."



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