Slump may force Brown to raise taxes

Chancellor Gordon Brown may be forced to raise taxes because of the collapse in high street spending.

Treasury officials are privately admitting that Mr Brown will be forced to slash his economic growth forecasts.

The move would hit the Treasury's tax receipts and increase the chance of the Chancellor failing to meet his fiscal rules.

It would also raise serious doubts about his claim that taxes will not have to rise in Labour's third term. As concerns about the economic outlook intensify, a Treasury source said the Chancellor's forecasting record had been excellent but the figures were constantly under review.

"We wouldn't ever rule out revising any of our Budget forecasts on GDP [growth] or public finances," he said.

Mr Brown is looking increasingly isolated over his optimistic view of the economy. In its latest health check, the Bank of England yesterday trimmed its growth forecast for this year from 2.7 per cent to 2.5, and said the weakness on the high street may be prolonged.

The prediction, in line with City consensus, is more downbeat than the 3 to 3.5 per cent the Chancellor forecast in the Budget. Slower growth than

Mr Brown expects would overturn his fiscal arithmetic, forcing him to raise taxes to plug a black hole in public finances.

Institutions including the Institute for Fiscal Studies, the International Monetary Fund and the Organisation for Economic Co-operation and Development have said that tax rises of up to £11billion a year are needed - equivalent to more than 3p on income tax.