Tax rise fears over £22bn black hole

FEARS that Gordon Brown may be forced to put up taxes before the General Election grew after new figures revealed his spending plans have blown a £22.5bn 'black hole' in Britain's public finances.

Economists warned the Chancellor could be left with little choice but to hit the public with higher duties unless he wants to scale back his ambitious programme to spend billions more on schools and hospitals or break his 'golden rule' and increase borrowing.

Official statistics for the first six months of the financial year that ends next March showed Government net borrowing increased to £22.5bn after a 15% rise in departmental spending in the last 12 months.

The Chancellor forecast a shortfall of £27bn for the year as a whole and analysts now believe he could overshoot this by £10bn despite an expected rise in receipts in the coming months.

George Buckley, economist at Deustche Bank, said: 'I think eventually he is going to have to raise tax. The widening in the deficit seems in part to be structural and not just a result of the economic downturn.'

The Treasury has denied weekend reports that Brown is planning to levy capital gains tax, at up to 40%, on the profits from all home sales in a move which could bring in £ 11bn a year. At the moment the tax only hits sales of second homes.

Reports claimed Brown had discussed levying it more widely, but these were dismissed as 'garbage' and 'irresponsible nonsense' by the Treasury.

But Shadow Chancellor Michael Howard told Radio 4's Today programme: 'The rash of stories about tax increases show how desperate Gordon Brown is. He knows public finances are in a mess. Sooner or later, we're all going to have to pay for it.'

Howard put part of the blame on rising numbers of civil servants under Labour, which he said would amount to 600,000 extra by 2005-06, upping the Whitehall pay bill by £19bn a year.