Updated: 19:00 EST, 17 July 2008>
Robert Chote: Public borrowing is well ahead of forecasts
Gordon Brown faces a £10billion black hole in the public finances that could force tax rises, economists warned yesterday.
Robert Chote, director of the Institute for Fiscal Studies, said public borrowing was already well ahead of forecasts given by the Treasury as recently as March.
Next year it may be £10billion higher than predicted.
The stark analysis brought a warning from Tory leader David Cameron that the rules for tax and spending policies may need to be rewritten.
He has already called for public finance plans to be scrutinised by an outside committee of experts, which would impose greater discipline.
Mr Chote warned that, to make the situation worse, Chancellor Alistair Darling is likely to face demands for an additional £5billion giveaway in his pre-Budget Report this autumn.
This would include extending tax reliefs brought in to ease the impact of the abolition of the 10p rate, as well as extra concessions on vehicle excise duty and fuel duties.
As a result, after the next general election, the next government will face a toxic choice between even tougher public spending settlements or another round of tax increases, Mr Chote told a Tory business conference.
The gathering of bankers and analysts also heard Mr Cameron attack Mr Brown for building up a debt mountain despite 15 years of strong economic growth and healthy tax receipts.
'Something went wrong,' he said. 'We need to make some very large changes in terms of economic policy.'
Mr Brown has claimed to have maintained disciplined public finances because of his borrowing rules, which aim to balance the books over the course of the economic cycle.
But many experts, including Mr Chote, accuse him of repeatedly moving the goalposts on his 'Golden Rule' in order to appear not to have broken it.
Mr Cameron argued that details of the rules themselves may need to be re-written, to make them more 'forward looking.' This could involve setting future targets for balancing the books, instead of judging the performance of the public finances retrospectively.
The Tory leader said that while the White House had been able give the U.S. economy a boost through tax rebates, Mr Brown's spending binge had left the coffers bare.
He also said politicians had done too little to ready the British public for a downturn.
Martin Weale, of the National Institute for Economic and Social Research, told the conference that both the government and ordinary families had been living well beyond their means for many years.
Households in particular had been seduced into spending more than they earn thanks to a decade-long house price boom that is now unraveling.
There was a glimmer of hope for Mr Brown, however, after the International Monetary Fund raised its growth forecasts for the UK.
The Washington-based Fund said the global impact of the credit crunch had not been as severe as feared, but warned that inflationary pressures have intensified, which could increase the chance of higher interest rates.
Source : http://www.dailymail.co.uk/news/article-1036152/Living-borrowed-time-Economists-warn-10bn-black-hole-force-taxes.html