Tax fear over Brown's forecast

GORDON Brown's forecasts of £12.7bn of extra revenue by spring 2006 have been greeted with derision by independent analysts.

The 44% surge in corporation tax receipts the Chancellor is banking on is 'simply not going to happen', said Peter Spencer of the Item club, which uses the Treasury computer model for forecasts.

David Hillier, of Barclays Capital, called the forecast 'really, really optimistic', adding that other revenue targets in last week's Pre-Budget Report would be hard to meet.

The Chancellor said income tax receipts would climb 16% by 2006, National Insurance contributions by 13.5%, inheritance tax receipts by 32% and stamp duty revenue by 27%.

Meanwhile, the economy is expected to grow by 3.25% this year, and 3.25% in 2005.

The Institute for Fiscal Studies, the public finance watchdog, said: 'Whether the improvement in the current Budget materialises on the desired scale depends in large part on whether tax revenues rebound as strongly as the Chancellor hopes. This relies mainly on a substantial pick-up in corporation tax receipts.' If not, 'fresh tax-raising measures' would be needed.

Spencer said the corporation tax forecasts were staggering, adding that most of the other revenue forecasts-were optimistic. Brown admitted-that total tax receipts in 200 3/4 were £9.6bn short of what he had forecast in the 2003 Budget, and that £2.2bn of this shortfall was accounted for by corporation tax.

Furthermore, spending on social security benefits was £1.4bn higher than forecast in last year's Budget and spending on tax credits £1.6bn higher, as was expenditure on public service pensions.

Until now, tax revenue shortfalls have been filled by public borrowing - £34.8bn this year and a planned £34.2bn next year.

Buried in the small print is a forecast that the total national debt will top half a trillion pounds in three years, rising from £375.7bn this year to £517bn by 2007/8.

Interest payments on the additional £141.3bn will, on average, cost an extra £8.3bn a year - the price of building and equipping more than 50 new general hospitals.

This year, the debt is worth 32.9% of gross domestic product, but by 2007/8 it will be worth 36.8%.

By 2009/10, the national debt is forecast to reach £574bn, equivalent to 37.1% of GDP.

Brown said that because net debt was 'well below' 40% of GDP, it was 'low and stable'.