Brown rejects warnings that taxes must rise

Gordon Brown yesterday insisted public borrowing would not spiral out of control, saying he was confident the deficit would remain under the key 3 per cent of GDP target required for members of the eurozone.

Speaking to the Treasury Select Committee of MPs, the Chancellor reacted angrily to suggestions that his forecasts might be wrong, leading to the possibility that he might have to cut public spending or raise taxes.

Mr Brown said: "I reject those allegations. This is ridiculous to suggest we are fudging our fiscal rules."

The Chancellor said the deficit currently stands at 2.2 per cent of GDP, and only 1.5 per cent when adjusted over the economic cycle.

But he refused to have his hands tied by making a guarantee that he would take action to ensure that the UK would remain under the 3 per cent level – a move which could bar the country from entering the euro.

Mr Brown insisted that public spending increases he announced in the pre-Budget report last month were justified and would not jeopardise his fiscal rules of balancing the Budget over the economic cycle.

But he sent out another warning to public-sector workers expecting a pay rise next year that too dramatic an uplift "would risk damaging the wider economy". The Treasury will not "tolerate" risks of inflation coming from this corner, Mr Brown said.

The Chancellor refused to add his voice to warnings about the UK's housing market overheating, saying the Treasury was confident consumer spending and house price inflation would slow gently next year.

But he echoed the cautious note already sounded by the Bank of England, saying he took "very seriously" the quickest growth in house prices in 13 years.

Mr Brown stuck to November estimates that the Government would not borrow more than £20bn this year, almost double the previous forecast.

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