Brown's £20bn budget 'black hole'

Gordon Brown's tax-raising Budget took its second hammering in two days today when Britain's leading economic think tank identified a £20 billion "black hole" in the Chancellor's figures.

The National Institute of Economic and Social Research said he would need more tax increases to plug the funding gap and warned his growth predictions were over-optimistic.

The NIESR report came hard on the heels of an embarrassment for Mr Brown at the hands of the Labourdominated Treasury select committee yesterday.

Four Labour MPs missed a crucial session of the committee for various reasons, allowing the report to be hijacked by the Tories, who gleefully castigated the Chancellor over his increase in National Insurance contributions.

Labour began an urgent inquest into the "missing four" - Kali Mountford (unwell), Nick Palmer (attending a funeral), James Plaskitt (prior engagement) and George Mudie (unknown) - with some reports suggesting they could lose their places on the influential committee.

Mr Brown was understood to have been infuriated by the bungle, which allowed shadow chancellor Michael Howard to claim that a Labour-led committee had produced a "damning indictment of Labour's Budget failures".

The NIESR claimed further tax increases of between £15 billion and £20 billion would be needed to restore stability after the big rise in public spending on the NHS announced by Mr Brown.

The institute also forecast growth in gross domestic product this year at 1.8 per cent, below the Treasury prediction of between 2.0 and 2.5 per cent. Its report said: "In total, tax increases or spending cuts equivalent to 1.5 per cent of GDP [£20 billion] are needed to restore the long-term solvency of the public sector."

NIESR director Martin Weale also called on Mr Brown to abandon his two cherished "golden rules" - keeping debt below 40 per cent of GDP and borrowing only to invest.

Mr Weale said of the rules: "They are such a poor guide to budgetary policy, it would be sensible for the Chancellor to consider replacing them. One approach would be to have a proper fiscal target, rather like the inflation target."

The NIESR said the only alternative to future tax rises would be for Mr Brown to rein back spending in Whitehall departments other than health, which would set up major clashes with highspending Cabinet ministers including Home Secretary David Blunkett.