Tax rises in Budget 'will slow pace of recovery': Warning from Treasury minister set to dampen renewed consumer confidence

A WARNING that recovery in the new year will be slowed by the tax increases in the Budget was given yesterday by Stephen Dorrell, the Financial Secretary to the Treasury.

As shops reported booming trade from the post-Christmas sales, Mr Dorrell's remarks risked damping consumer optimism. However, he insisted the Budget would enable the recovery to be sustained.

'You are right to say the tax increases coming in will slow the recovery from the pace it would otherwise have taken. It is because that action has been taken that I am confident it would be sustained,' Mr Dorrell said on BBC Radio.

'What we do not want is a consumer recovery which gets out of control, which leads to inflationary boom and balance of payments difficulties of the kind we have seen in the past. We have taken the steps necessary to contain the rate of improvement in the economy.'

His remarks underline the message from ministers that the two 1993 Budgets will have to be paid for in 1994 with tax increases totalling about pounds 15-17bn. Kenneth Clarke, the Chancellor, conceded before Christmas that that was the equivalent of 7p in the pound on the standard rate of income tax.

Labour intends to go on the offensive in the new year by attacking the Tories for increasing the tax burden. Andrew Smith, a Labour Treasury spokesman, said: 'When, come April, people have their pay slip in one hand and a fuel bill in the other they will see for themselves just how hard the Government is hitting them on taxation.'

Recovery prospects were also hit by a report indicating that wage deals were edging downwards to some of the lowest levels since the Second World War. This comes at a time when the Retail Price Index is expected to move up significantly.

While news that pay rises are continuing to slide will help the fight against inflation, low wages will undermine high street spending and feed through to factories already coping with recession.

The research group, Incomes Data Services, says two-thirds of wage deals from October to December were between 1 and 2.9 per cent, compared with 2 to 3.9 per cent in the quarter to September.

The December issue of IDS Report points out that within the overall public sector pay bill freeze also announced in the Budget, ministers will be aiming for settlements of around the 2 per cent mark, funded by 'efficiency savings'. It says the budget 'Red Book' referred to such savings but was not clear whether the figure was a 'maximum, a planning measure or a target'.

Inevitably the stringent policy which provides for a pay bill freeze until March 1997 will lead to thousands of redundancies among employees whose pay is funded by the state, and thus a further reduction in consumer expenditure.

The IDS researchers point out that most City economists now expect inflation to rise significantly in the first half of 1994. This is because of an increase in excise duties on petrol and tobacco on 1 December and the imposition of VAT on domestic fuel from April.

Previous mortgage rate cuts will also drop out of the year-on-year figures and mortgage interest relief will be reduced from April. Inflation is expected to be between 1.7 and 2 per cent in the last quarter of 1993, but is predicted to rise to between 2.4 and 4.2 per cent in the second quarter of 1994.

IDS Report 655; IDS, 193 St John Street, EC1V 4LS.

Directors' confidence, page 10

(Photograph omitted)

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
Voices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
News
Ireland will not find out whether gay couples have won the right to marry until Saturday afternoon
news
News
Kim Jong-un's brother Kim Jong-chol
news
News
Manchester city skyline as seen from Oldham above the streets of terraced houses in North West England on 7 April 2015.
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?