Wednesday January 30, 10:15 AM
UK Treasury needs to raise taxes by 8 bln stg to achieve fiscal targets - IFS
LONDON (Thomson Financial) - UK Chancellor of the Exchequer Alistair Darling would need to raise taxes by 8 bln stg in his next budget in order to achieve the fiscal targets the Treasury has imposed upon itself, a leading think tank said.
In its 'Green Budget', compiled in conjunction with Morgan Stanley (SPU - news) , the Institute for Fiscal Studies said 8 bln stg would help keep public sector debt within the target of 40 pct of national income, as well as improve finances over the next five years.
But this is unlikely to happen, the IFS said, as Darling will argue that the bad news in public finances is only temporary while he seeks to keep fiscal policy loose in order to support the economy during the present downturn.
'However, recent experience suggests that temporary problems in the financial sector can have a bigger and more persistent effect on the public finances that the Treasury initially expects,' the IFS report said.
IFS expects the government will have to borrow more than 40 bln stg this year, next year and in 2009-10. Public sector net debt will break through the Treasury's self-imposed ceiling of 40 pct of national income in 2009-10 and touch 41.2 pct by 2012-13.
The Treasury will also break its 'Golden Rule' -- to borrow only to pay for investment -- over the new economic cycle, IFS said.
This is because the government will enter the next economic cycle with significant deficits, whereas in the past it had enjoyed big surpluses.
'Over recent years, the Treasury has repeatedly been overoptimistic in predicting how quickly such surpluses would begin to materialise,' the IFS report said.
The impact of having Northern Rock (LSE: NRK.L - news) on the public sector net debt remains uncertain for the moment, but when it is initially added to the government's balance sheet it is likely to add 100 bln stg, or 7 pct of national income, to net debt, easily breaching the Treasury's rule of 40 pct of national income.
The IFS said the risks to the Green Budget lie to the downside, as the Morgan Stanley forecasts for economic growth are weaker than the Treasury's because of lower consumer spending as households try to shore up savings.
'Under this scenario, borrowing would be even higher and net debt would exceed 44 pct of national income after five years,' the report said.
The Green Budget's economists from Morgan Stanley see a one-in-three probability of a technical recession in the UK.
|
|
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View