UK Needs GBP20bn More In Tax
Tuesday, March 9, 2010
Additional tax rises or spending cuts of around GBP20bn (USD30bn),
over and above current plans, will be needed by 2013/14 to close the
fiscal gap, according to PricewaterhouseCooper's latest UK Economic
PwC’s projections for the UK public finances suggest that public
borrowing could be close to the Treasury forecast in 2010/11.
Beyond that, however, the Treasury projections are based on sustaining
average GDP growth of 3.25% from 2011/12 through to 2014/15, which is
well above average independent forecasts which project average GDP
growth over this period of only around 2.5% per annum.
“Our projections are based on a more cautious view of medium-term
growth potential than the Treasury," said John Hawksworth, head of
The report states that the fiscal gap could be closed through many
possible combinations of additional tax rises and spending cuts
starting from 2011/12 and building up to around GBP20bn per annum (at
2009/10 GDP values) by 2013/14.
“Depending on the mix of tax rises and spending cuts adopted, the
scale of the cumulative real departmental spending cuts required in the
three years to 2013/14 would be around 9-14%, while the real cuts in
unprotected areas could vary from 17%-27%. In practice, a
spending squeeze towards the middle of the range might appear most
plausible, supplemented by perhaps around GBP10bn or so of additional
tax increases," Hawksworth added.
Echoing similar sentiments expressed by the Confederation of British
Industry earlier in the week, Hawksworth said that international
investors are looking for signs of a more "credible" budget plan.
“The details of this package will be for the next government to
decide, but the bond markets and credit rating agencies will be looking
for a credible medium-term fiscal consolidation plan to be announced
soon after the next general election," he said.