Brown may escape tax rises

SINCE taking office, Gordon Brown has consistently confounded his City critics. There was no lurch into recession after the 1997-98 Asian crisis, and Britain was one of the few Group of Seven richest countries to avoid recession in the wake of the post-millennium slowdown.

Now the Treasury believes it can do it again. The government's just-issued collection of private sector forecasts for the economy projects growth of 1.8% this year.

That is a creditable figure given the lamentable performance of euroland, but a number well below Brown's Budget forecast of 2% to 2.5% expansion.

Brown now believes that he is in striking distance of his Budget projection. A combination of factors, including public sector investment, strong consumer demand and, more recently, the pick-up in manufacturing led by technology firms, have improved prospects.

The Treasury view is that growth this year will surpass 2%, bringing it within the Chancellor's Budget range.

The political implications of this are significant, especially if the global economy picks up next year on the back of an American upturn.

The government has recently been battered over rising taxes. These include a rise in fuel duty, rising council tax bills and suggestions that we are in for a further general round of tax increases to pay for the public sector deficit.

A surging Budget shortfall means the government needs every penny it can get.

The decision to reimpose the fuel duty escalator from October 1 will enable it to recapture £500m of revenues not just this year, but into the future. As for council taxes, the main responsibility for this fiasco rests with the Office of the Deputy Prime Minister and the way it has allocated central government funds.

The betting must be that this will get much greater attention in the coming months.

What Brown and the Treasury want to avoid at all costs is another big rise in taxation between now and the next General Election.

This would effectively rule out increases in income tax, National Insurance contributions, or in the scope and range of VAT. Indeed, Brown is resisting European pressure in this area. He maintains publicly that whatever happens, he will stick to his own fiscal rules.

So how will he do it at a time when private sector forecasters are projecting a Budget deficit of £33bn to £35bn in the current fiscal year?

The Treasury maintains it can absorb a deficit of this size without breaching its fiscal rules, since it will amount to less than 3% of national output. Its view is that in the other G7 economies, most notably Japan, the United States and France, deficits are already much higher. It is also apparent that departments will have to get used to tighter curbs on spending.

The super-normal growth seen over the last two public spending rounds will come to an end next year and the speed of expansion will level off - with the possible exception of the NHS.

So spending levels should start to plateau at the same time as revenues begin to rise on the back of a more robust economy.

If the Chancellor can pull this off, he believes there might be a fair wind through to the next Election.

There should be scope to end the freeze on tax allowances imposed in the 2003 Budget, which pushed large chunks of Middle England into a higher tax band.

All this might appear like wishful thinking by the man currently dubbed the 'tax and spend' Chancellor by business and his political opponents.

But one should not dismiss out of hand the possibility that Brown will prove the City pundits and his critics in the big accounting firms wrong.

Robin's retreat

IN the bear market, Robin Saunders was one of the City's great success stories. Her skilful use of debt finance, in an era of low interest rates, brought her and WestLB's principal finance unit some triumphs, notably at Bhs.

But it now appears that the alchemy, which made her rich very quickly, was not universal. Parts of Boxclever, the TV rentals business, have ended up with the administrators, as we report below. Despite this, Saunders has hung on until now at WestLB in the belief that she can buy out the business she effectively founded.

Her currency is now looking tarnished. She is to come off the Bhs board, Boxclever has imploded, and her personal life is under scrutiny after the Daily Mail's disclosure of a close friendship with celebrity chef Marco Pierre White.

Saunders' stock has long since peaked and is starting to look well past its sell-by date.