Tax rises looming after Election

GORDON Brown issued a robust analysis of projected economic growth in his Pre-Budget Report today, insisting that borrowing levels will fall from a current high of £35bn this year to just £22bn over the next five years.

But the Chancellor's admission that it will have to rise first from the £33bn he projected in the Budget earlier this year has sparked fears that taxes will have to go up to pay for it after the General Election.

Analysts had projected a major increase in Government borrowing to pay for public sector spending increases and a shortfall in tax receipts.

Although Brown said the increase was less than some had projected, it is still a rise and will have to be paid for.

Economists disagree with his assessment that he will stick to his self-imposed golden rule - which allows borrowing only to invest over the business cycle.

Gavin Redknap, UK economist at Standard Chartered, said tax rises of about £10bn a year will be needed to bring the books into balance.

'Without tax hikes it seems virtually inconceivable the golden rule will be met in this cycle. That means the Chancellor will either have to raise taxes or let the golden rule go.'

The Chancellor said that borrowing as a proportion of gross domestic product will fall from 2.9% now to just 1.5% in the five years. The 2.9% figure compares with 3.9% in Germany, 4.7% in the US and 6.7% in Japan, he declared.

To laughs from MPs as he presented his Pre-Budget Report, the Chancellor pointed out that the borrowing levels also mean that Britain will meet the necessary Maastricht criteria.

There was evidence, however, that the economy is set to slow during 2005. Domestic demand will grow by between 3% and 3.5% compared with 4% this year, Brown admitted.

Set against the background of an uneven world recovery, however, the figures still mean the Chancellor is expecting the UK to grow at a faster rate in 2005 than its European rivals.

Brown also set out further details of proposed savings efficiencies in the public sector, outlining the numbers of civil servants who will move out of London to the regions over the next five years. By 2010 some 20,000 civil servants will have left London for Yorkshire, Liverpool, Newcastle and Cardiff.

The Chancellor also unveiled plans for a massive £30bn fire sale of Government assets. These are likely to include prime office buildings in Central London as they are vacated by civil servants.

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