'Wise men' warn against tax rise

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The Independent Online
MOST of the 'seven wise men' appointed to advise the Chancellor will today urge him not to raise taxes in next month's Budget for fear of jeopardising recovery. But they are split on whether interest rates should be cut again.

The seven meet at the Treasury this afternoon to prepare their first report, which will be published in 10 days' time.

Only Tim Congdon, from Lombard Street Research, believes firmly that taxes should be raised in March to tackle the widening hole in the Government's finances. The City fears the Government will have to borrow more than pounds 47bn in 1993/4.

Mr Congdon believes the Chancellor should wait before cutting interest rates again, but should boost the amount of money in the economy by allowing government debt sold to banks to count towards funding public borrowing.

Most of the seven believe that tax rises should wait at least until December. But Patrick Minford, of Liverpool University, said high borrowing was 'overwhelmingly the result of recession' and that the Chancellor should 'stick resolutely with present tax rates'.

Gavyn Davies, of Goldman Sachs, argued that the Chancellor should announce tax increases worth 1 per cent of national output for three successive years. But the increases should not be implemented until next year, and only if recovery is under way.

Mr Davies said that interest rates should be cut towards 4 per cent by mid-year unless there was evidence of a strong recovery. David Currie, of the London Business School, said rates should be cut by a point to 5 per cent, provided they rose again when necessary. He said tax increases should be phased in.

Andrew Britton, of the National Institute of Economic and Social Research, agreed that taxes should not be raised in March. He added that government spending should be aimed more at directly tackling unemployment.

Andrew Sentance, of the Confederation of British Industry, called for a 'broadly neutral Budget'. He added that the Chancellor should wait before cutting interest rates again, although another German cut might provide a window of opportunity.

Wynne Godley, of Cambridge University, said he was going into the meeting with 'an open mind'.