Tax fears damp high street spending

FEARS that Kenneth Clarke will raise taxes again in next month's Budget triggered a slump in consumer confidence and helped to weaken high street spending, surveys suggested yesterday.

People are more worried about their finances than at any time for a year, according to a Gallup consumer poll. The Confederation of British Industry said high street spending growth slowed last month and that retailers had been unusually over-optimistic.

The proportion of people expecting to be worse off in 12 months has risen from a quarter to a third in the past month. People are also considerably more pessimistic about the economy, inflation and unemployment.

'Unease over the contents of the Chancellor's Budget, together with the disappointing figures on unemployment, inflation and manufacturing output are contributing to a low level of confidence,' Gallup said.

Mr Clarke's relentless warnings about higher taxes could be weakening the economy ahead of their imposition, making it more likely that they would be accompanied by interest rate cuts. American banks yesterday cut their prime lending rates from 6 per cent to 5.5 per cent in an attempt to spur borrowing.

Nigel Whittaker, of the CBI distibutive trades panel, said the upturn in high street spending was fragile and unevenly spread. 'The level of sales for the time of year is now considered below average, with only one retailer in four indicating that business conditions are good,' he said.

The latest CBI survey of retailers pointed to a slowdown in the annual rate of growth in high street spending, although that could be consistent with a rise in retail sales volume on the month.

Pressure on the Chancellor to raise taxes was maintained by figures showing that the Government borrowed pounds 5.9bn last month to fill the gap between its spending and tax revenue.

In the first half of the financial year the Government has borrowed pounds 24.2bn, nearly a quarter more than at the same time last year. The Treasury said that was consistent with its Budget forecast of pounds 50bn borrowing for the whole year, although most City forecasters still expect a slightly lower figure.

View from City Road, page 30

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