£12bn tax bill to meet Labour pledges

More tax rises will be needed to fund the Government's huge cash injection into health and other public services, a new report warns.

Pricewaterhouse-Coopers, the professional services group, has calculated that taxes will have to rise by £12 billion a year, the equivalent of an extra 4p on the basic rate of income tax, in the next parliament if the Government is to meet its NHS pledge.

The "black hole" in Treasury accounts arises because the Government's spending plans set out in the Budget reflect a commitment to only the first five years of the rise in health spending recommended by Derek Wanless's report. The report proposed a 10- year catch-up phase to meet the promise of "world class standards".

Delivering the second half of that catch-up, along with sustained growth in spending on education, pensions and long-term care, would cost an additional £12 billion a year, PwC estimates.

With government borrowing set to come close to the Chancellor's self-imposed limit, and little obvious scope to cut spending in other areas, the extra spending will almost certainly be paid for by higher taxes. "If the Government want to continue the momentum of the current policy direction, they are going to have to think about further tax rises around 2006, probably in the first years of the new parliament," said John Hawksworth, PwC's chief economist.

? Gordon Brown is urging defence chiefs to scale back their order for 48 Eurofighter aircraft in return for funds for two new aircraft carriers, reports claim today. Britain agreed in 1997 to buy 232 Eurofighters, for up to £18 billion, but the Treasury believes they are outdated and are taking up a fifth of the annual weapons budget.