Gordon Brown has put UK Economy in a Perilous Position

10.50.00pm GMT Thu 31st Jan 2008

The Governement has been told it needs to raise taxes at a time when it needs to fight an economic slowdown

The Government needs to raise taxes by £8 billion, or £250 for each family in the UK, to meet its own targets on public finances, the Institute for Fiscal Studies has said.

In its annual Green Budget the IFS warned that if the Chancellor did not change course, public sector net debt would breach the Government's own threshold of 40% of GDP in 2009.

Gordon Brown has dealt the UK economy a double whammy. As the UK faces a severe slowdown, so the economy needs a stimulus. Lower interest rates from the Bank of England will be ineffective some assert as banks are generally not passing on the lower rates to consumers. Instead banks are tending to use lower interest rates to repair their balance sheets. While the Bank of England is expected to cut interest rates soon, inflation remains a threat and sterling is weak and so the central bank cannot afford to be cavalier.

Normally, governments would improve public finances during years of plenty such as those recently experienced. Then as countries face lean years, governments would cut taxes to help stimulate their economies.

Not so the current UK government. The Labour administration under Gordon Brown's stewardship have increased public spending in recent years. Now public finances are in no shape to provide the fiscal stimulus the UK economy needs. On the contrary, the Institute for Fiscal Studies is now proposing that prudence dictates an increase in taxation. This combined with only modest interest rate cuts affordable, puts the UK economy in a perilous position as it enters a downturn.

Budget day 2008 has been set for March 12th.

Lib Dem Shadow Chancellor Vince Cable has said "Gordon Brown has succeeded in backing the British economy into a corner at a time when it needs as much room as possible to fight against the global economic slowdown. The Government now seems to have a stark choice of either increasing taxation in an already depressed economy or ignoring its own fiscal rules, further damaging its credibility."