TAXPAYERS in Britain face up to 5p in the pound in extra taxes because of the credit crunch created by the banks, leading economists have warned.

 

After a week of unprecedented financial turmoil, they predict that government borrowing is about to surge as the Treasury’s tax take is slashed by a slump in earnings from the City and the downturn.

 

Leading forecasters say the government will soon be forced to borrow as much as £100 billion a year, giving Britain easily the biggest budget deficit of any western country.

 

Any tax rises would come on top of increases imposed by Gordon Brown when he was chancellor. He repeatedly raised indirect “stealth” taxes while leaving income tax unchanged. Taxes went up by 3% of national income, equivalent to more than 10p on the basic rate of income tax.

 

The Centre for Economics and Business Research (CEBR), in a report to be published tomorrow, says that borrowing will hit £90 billion next year, more than £50 billion above Alistair Darling’s forecast in the March budget. This year’s budget deficit will be £63 billion, it says, £20 billion above the chancellor’s estimate.

 

“Ninety billion pounds is a huge amount of borrowing,” said Douglas McWiliams, the CEBR’s chief executive. “Although there is little room to do much about it in the short term, it will overshadow public policy for many years to come.”

 

Its detailed calculations show that the Treasury’s overoptimistic growth forecasts, combined with the impact of the crunch on financial companies and rising unemployment, will particularly hit income tax, corporation tax and National Insurance contributions.

 

Britain already has the biggest budget deficit of any industrial country. A £90 billion deficit would be the equivalent of 6% of the economy, well outside the government’s fiscal rules. A deficit on that scale would hit the pound.

 

Though economists acknowledge that action to curb the deficit should not happen while the economy is in recession, they say the government will then face a stark choice between slashing government spending or putting up taxes.

 

Brown said yesterday that when HBOS hit the buffers, his first concern was for “people with mortgages who are struggling to make ends meet” and “the mother at the supermarket . . . knowing that the bills have gone up”.

 

He added: “When people ask what we will do to sort out the financial system and ensure there is responsibility and not irresponsibility, I tell you in three words: whatever it takes.”

 

Ray Barrell, senior research fellow at the National Institute of Economic and Social Research, which warned of the prospect of a tax rise equivalent to 5p in income tax, said the effects of the crisis would endure.

 

Investec, a City firm, forecasts that unemployment will rise by more than a million as a result of the mayhem in world markets. Philip Shaw, an economist at Investec, said: “If central banks do not coordinate a rate-cutting plan in the next few days, the claimant count could reach two million in 18 months’ time.”

 

Another forecaster, Capital Economics, predicts that the budget deficit will increase even more, to £100 billion, in 2010-11, posing a huge headache for George Osborne, the shadow chancellor, should the Tories win the next election.

 

Source: Sunday Times

 

Will you be happy to pay an extra 5% in income tax?

 

Or should the tax on high earners be increased to make up the shortfall?

 

Or is the only option to reduce Government spending on Labour's pet projects.

If there is a 5% tax increase for all, bottom of the earners league and top of the earners league ... then the gap between rich and poor will be even greater. But it seems this is what a lot of people want! I think some low-earners believe (ridiculously) that a Tory government will help them ... well they'll soon find out how wrong they were.

 

Just my opinion.

 

Norma

If there is a 5% tax increase for all, bottom of the earners league and top of the earners league ... then the gap between rich and poor will be even greater. But it seems this is what a lot of people want! I think some low-earners believe (ridiculously) that a Tory government will help them ... well they'll soon find out how wrong they were.

 

Just my opinion.

 

Norma

 

historically i would have agreed with you, but im not so sure now.

historically i would have agreed with you, but im not so sure now.

 

Well we'll find out when David 'Moonface' Cameron gets in I suppose.

 

Norma

This is just it...Labour should not be proposing a 5% blanket increase...if they truly want any chance of winning the next election then they need to make a small change to the lower rates and introduce a higher rate for obscene earnings of 50% instead of 40%. The tories would naturally campaign against this and finally we might see a gap in these parties again...at the moment it's almost impossible to see the join policy-wise.

For goodness sake, this is a complete joke of a country.

Its actually IMPOSSIBLE! to get a job for a start, ive applied everywhere i can and no-where gets back, the staff shops have just stand around doing f*ck all anyway.

I have no money coming in at the moment, not sure if im getting my EMA, my Mum was on the phone an hour!! just to get through to them only for them to be completely useless.

Everything is already pathetically high priced, (£2.50 for a tiny chicken salad in most places) and now they raise prices further lmaoo im quite shocked people havent had a giant protest or something.

I'm surprised there isn't an 'existance tax' or a 'standing still tax' :rolleyes:

 

NO I am not ok paying an extra 5% tax. Not that I pay any, but I WOULDN'T be happy.

For goodness sake, this is a complete joke of a country.

Its actually IMPOSSIBLE! to get a job for a start, ive applied everywhere i can and no-where gets back, the staff shops have just stand around doing f*ck all anyway.

I have no money coming in at the moment, not sure if im getting my EMA, my Mum was on the phone an hour!! just to get through to them only for them to be completely useless.

Everything is already pathetically high priced, (£2.50 for a tiny chicken salad in most places) and now they raise prices further lmaoo im quite shocked people havent had a giant protest or something.

a lot of places are cutting back on hours.

 

I know Morrisons are. Morrisons in St Andrews have stopped hiring

there is no doubt the financial crisis has cost the government money but most of the effected banks are in the US or under the EU. I cant see the cost being anywhere near needing a 5% increase income tax... thats huge not to mention the cash windfall the goverment got through the increase in oil prices.

 

Taxing 50% + in high earners is also wrong. Most of the people earning this amount of money are highly skilled and add much more in terms of innovation and forward thinking. If we tax these people too much they will just move to another country to work and we will lose the innovation and skills. Its so easy to say lets tax them but tbh there is no way you can risk losing them.

 

Final point, govt spending on pet projects is very small numbers in relation to possible bail outs of major financial institutions.

You have to think about what you get for the money - If it is required to keep the NHS and schools from falling even lower in standards then go for it. I would of course much rather taxes didn't go up and some of the benefits people get were stripped back for example I don't see why kids should get paid to have the internet in their homes?! There are libraries and schools for that - the internet is not a necessity imo it is a luxury

Exactly - build 'Internet libraries' for research to compliment the book libraries we have now. Give kids the Internet in their bedroom and they'll use it chiefly to watch youtube, download music and play online warfare games. As you said, luxuries.