Brown 'may increase taxes'

A LEADING economics think-tank has raised fresh fears that Gordon Brown will be forced to increase taxes to cover the Government's spending plans over its third term in Parliament.

The Organisation for Economic Co-operation and Development today warned in a report on global economies that even a likely rise in tax revenues from the corporate sector will be 'barely sufficient' to plug the hole in the Government's coffers as public spending goes up in the next two years.

It adds that gross domestic product (GDP) growth is likely to be only 2.5% this year, putting fresh pressure on Brown to ditch his optimistic 3%-3.5% forecast and fall in line with City experts who have already scaled back their predictions. Interest rates are, however, unlikely to increase this year despite the economy operating at near full capacity.

The OECD says that while cost pressures will push inflation slightly above the 2% target at some point, 'the rate seems likely to return to the target towards the end of the year'.

The outlook increases pressure on Brown amid concerns he got his sums wrong. Tax revenues from the corporate sector are expected to go up by 0.5% of GDP between 2004 and 2006 but nominal public spending is set to rise 13%.