PwC says no need for UK tax rises

Despite a forecast increase in the UK's budget deficit there is no immediate need for tax increases or spending cuts according to PricewaterhouseCoopers Sunday, 3-Nov-02 00:00:00 GMT News 11399 Despite a forecast increase in the UK's budget deficit there is no immediate need for tax increases or spending cuts according to PricewaterhouseCoopers. In its UK Economic Outlook report, the firm maintains this stance even though the budget deficit has been predicted to rise to over £20 billion ($31 billion) next year. PricewaterhouseCoopers has revised its UK growth expectations for next year downwards and it is likely that Chancellor Gordon Brown will do the same when he announces the pre-budget report in the next few weeks. The firm did agree with recent press reports that the Treasury will have to borrow its way out of a shortfall in tax receipts in comparison to its predicted figures but blames this on the poor economy both in the UK and globally.

Despite this, it argues that not only is there no clear need for tax increases but that it could even be counter-productive if this were to happen now while the economy is still weak. The head of the firm's macroeconomics unit, John Hawksworth, said: "Short-term concerns about partly cyclical shortfalls in government revenues are of minor significance in comparison to the longer-term issues concerning tax and spending."

Hawksworth said that to maintain the pace of public spending growth necessary to match the growing long-term demands, government revenues will have to rise with the tax share increasing to around 45% of GDP from 40%. He added: "The key question will be whether the extra money can deliver a sufficiently large perceived improvement in public services to maintain public support for the rising tax burden needed to fund them."

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