New homes face tax rise after election

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Employers, workers and housebuilders should brace themselves to bear the burden of a post-election tax rise, a firm of accountants warns today.

Employers, workers and housebuilders should brace themselves to bear the burden of a post-election tax rise, a firm of accountants warns today.

An increase in National Insurance contributions on businesses and employees and VAT on new homes are the most likely candidates for a tax increase after the general election, according to Grant Thornton (GT).

The Government's tax take is already earmarked to rise to a 25-year high of 38.5 per cent by 2009 from 36.3 per cent in the current year, thanks to rising incomes and a rebound in profits, according to the Budget in March.

Rising earnings levels will draw more people into the top rate of tax - a phenomenon known as "fiscal drag". GT forecasts that 4 million individuals will be higher rate taxpayers by 2010.

The Government is forecasting a £10bn or 30 per cent increase in corporation rax receipts over the coming year, which GT described as "a tall order". Ian Evans, its head of tax, said: "With commentators predicting some of the tax revenues forecast by the Treasury will fail to materialise, the next chancellor will have to find other ways to generate more tax revenue."

At Labour's election manifesto launch Gordon Brown pledged not to increase the basic and higher rates of income tax and not to extend VAT to food, children's clothes or newspapers.

Mr Evans said Mr Brown had not ruled out raising VAT or extending to other items, such as new homes, which would raise £6.7bn.

But last week the Chancellor refused to rule out raising NICs (national insurance contributions), saying he would not issue a statement on every tax. Another 1 per cent increase would raise £7.7bn.

"What was left unsaid is probably more significant" Mr Evans said. "Labour has failed to rule out any increases in national insurance, a move which would hit businesses and individuals hard. If Mr Brown returns to Number 11 and stays true to current form, it is odds-on that NI will be his target for tax-raising measures."

Homeowners and businesses should also be prepared for a further rise in interest rates, although they will get at least another month's breathing space, a firm of business advisers warns.

BDO Stoy Hayward said its latest survey showed the economy was shrugging off threats from the consumer side of the economy. It said the Bank of England would raise rates in June unless the consumer economy suffered a renewed decline.

Peter Hemington, a partner at BDO, said: "The Bank will be growing impatient to raise rates, and it is likely that whoever wins the general election will see further rate increases during the next quarter."

Although the vast majority of City economists believe that rates will stay on hold next Monday, some believe that the decision will be closer than most people are expecting.

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