Tax rises against businesses and individuals will be necessary as government deficit spending overshoots its target by £11 billion in the next two years, the Centre for Economics and Business Research (CRBR) has claimed.
Publishing its quarterly business forecast today, the CEBR argues that the Treasury has underestimated likely growth of the UK economy in 2007, meaning Britons will not have earned the money to pay for the government's taxation programme in that year without further tax rises.
It suggests that chancellor Gordon Brown's borrowing targets will be exceeded by £3 billion this year and £8 billion next year, while economic growth will stabilise – in contrast with government expectations of continued expansion.
"The inability of the government to lower public borrowing - even when there is an economic upswing as this year - is a message that the economy may soon need to chug along without a push from Whitehall," Jonathan Said of the CEBR said.
"In addition because of continually rising debt and because of the difficulty in cutting back public expenditure growth once it has ballooned, the Treasury is going to need to raise taxes over the next few years. Unfortunately, this is likely to come at a bad time - when the world economy and the financial markets meet some turbulence."
Having congratulated the government for its high-level of spending which in recent years has supported British business, the CEBR says a failure to lower government spending according to Keynesianism thinking is now threatening the balance of Mr Brown's future budgets.
If the CEBR is correct, Mr Brown risks breaking his fiscal 'golden rule' of ensuring that government spending as a percentage of GDP does not rise above 40 per cent, a ration it expects to be reached in March 2008.