Tax warning knocks Brown's pitch to business

Click to follow
The Independent Online

Gordon Brown's plans to woo the business vote took a knock yesterday after independent analysts warned taxes would have to rise after the election.

Gordon Brown's plans to woo the business vote took a knock yesterday after independent analysts warned taxes would have to rise after the election.

The Item Club, an economics think-tank that claims to use the Treasury's economic model, said there was a "serious deficit" in the public finances, echoing similar warnings from the Institute for Fiscal Studies and the International Monetary Fund that taxes must rise by some £12bn unless spending is cut.

At the start of the final full week of campaigning in the election, the Chancellor will today use a speech to the British Chambers of Commerce's annual conference to hammer home Labour's record of low inflation, high employment and unbroken growth.

He will be followed by Michael Howard, the leader of the Conservative Party, who will accuse Mr Brown of plotting to impose a post-election tax increase on businesses to fill a black hole in the public finances.

Both parties will come under pressure from business leaders to give a firm commitment not to raise corporate taxes. Speaking in advance of the conference, the BCC president Bill Midgley said a poll of members showed that 90 per cent were worried about the impact of future tax increases on their companies.

"Taxation is one of the biggest issues of concern. The continuing debate over whether taxes will have to rise under a future government is a major worry and employers need a firm commitment now that business taxes will not go up," he added.

In its quarterly report the Item Club warns that a combination of trade deficits, the pensions crisis, and European challenges to UK tax law will push the Treasury further into the red. It said Mr Brown's "golden rule" - to borrow only to invest across an economic cycle - would come under threat as the next cycle would begin with large deficits.

Peter Spencer, an economics professor at York University and adviser to the Item Club, said a "prudent" Chancellor would act by tightening fiscal policy as soon as possible.

"This is the reason we expect tax or [National Insurance] contribution (NIC) rates to go up in the next Budget," he said.

Professor Spencer predicted that NICs would be increased next year by as much as they were in 2003 - a move that triggered a furious reaction from business organisations.

Comments