'£10bn tax rise' after election

BRITAIN'S taxpayers will have to dig deep to pay for the growing deficit in the Chancellor's spending plans.

According to tax experts, the most immediate evidence of this will be rises in National Insurance Contributions in the Budget next April.

But many believe that NIC increases will only help pay for part of the growing hole in the public finances. After the next election it is increasingly likely that direct taxes - income tax - will have to rise significantly, perhaps by as much as 3p in the pound.

Gordon Brown has committed himself to keeping the Golden Rule, which says that the government can only borrow over the course of the economic cycle to fund investment, not current spending.

With spending commitments rising rapidly, borrowing has been increased accordingly. But once the Chancellor runs up against the Golden Rule, taxes will have to be put up.

Maurice Fitzpatrick, head of economics at accountancy firm Numerica, says this point will be reached shortly after the next election.

'From a timing point of view it's very convenient, but it's just the way the numbers work out. Labour has committed itself to not putting up income tax. But after the next election it will be unavoidable if Labour wins and wants to stick to its plans. By my calculations, once you factor in the government's spending commitments there will be a £10bn hole to plug. That's equivalent to 3p in the pound on the basic rate of tax.'

Other tax experts said there was still nothing in the Chancellor's Pre-Budget Report to indicate that a rise in income tax would be required.

Simon Rees, an adviser to private clients at PricewaterhouseCoopers, agreed that tax rises would not be enacted anytime soon, certainly not before the election. But, he believed, National Insurance Contribution rises look much more certain. He added:

'There's nothing in the Pre-Budget Report that says we'll all be paying more individual taxes. But National Insurance has got to be a target, it's a very easy way for the Chancellor to go. He can put it up and still pretend that he hasn't put taxes up, even though we can see how it is administered. I'd be very surprised if we saw any rises in income tax in the near future because at the moment it's a political non-starter.'