Brown seeks a golden egg

THERE is no great mystery as to why the Chancellor will be proposing a crackdown on tax avoidance in next week's Budget. The Treasury is troubled by the deterioration of public finances and is looking at ways to plug the gap.

Gordon Brown is confident that he will bring in public borrowing for the current financial year within the £37.4bn ceiling set in his Pre-Budget Report.

But the next financial year, starting on April 6, is looking much more dodgy. Not only may it be difficult to limit borrowing to the projected £31bn, but there are concerns that Brown may breach his own fiscal rules. He has already strayed outside the EU's Maastricht criteria for the first time since occupying Downing Street.

Most at risk is thought to be the 'golden rule'. Under this convention, public borrowing should only be used for 'investment' over the economic cycle, not for current spending on wages and welfare payments.

Calculations by both the Institute of Fiscal Studies and the National Institute, rejected at the Treasury, have suggested already that Brown is living dangerously.

So what can the Chancellor do next Wednesday to deal with this? The Budget will offer a preview of new spending plans to be fully unveiled in June.

Brown intends to ratchet down the rate of growth in spending to match expansion in the economy. Only spending on the National Health Service will be excluded - so we can expect some squealing from other departments.

Brown will also want to start implementing the reforms of public services proposed by Sir Peter Gershon, and reference will be made to this in the Budget.

Finally, he needs to boost revenues because he has a severe and unexpected problem. This is where avoidance comes in.

The Chancellor is thought to be passionate on this, believing that some tax planning schemes - such as those to avoid inheritance taxes on family homes - sail too close to the wind and verge on the criminal.

This may sound incredible, but it explains his interest in a new anti-avoidance law that will require tax planners to notify the Inland Revenue of new schemes before they are implemented.

The attack on middle-class tax planning is just one of a number of anti-avoidance measures being plotted.

Inland Revenue enforcer Ray McCann is part of a compliance team tackling the tax cheats. As well as outlawing gift schemes designed to avoid inheritance and capital gains taxes, the Treasury plans to step up enforcement in the construction industry. It has already acted over film tax relief and also has its eye on gift aid relief and various VAT fiddles.

No one wants to see tax cheats getting away with things, especially when the vast majority of us on PAYE have virtually no chance of sheltering income.

But in setting the dogs on the avoiders - as a means of beefing up the shortfall in revenues - the Treasury risks turning the consumer-friendly Inland Revenue back into the enemy of the people.