Bad news for Britain’s Labour government right on the eve of tomorrow’s unveiling by Chancellor Alistair Darling of the annual Budget.
The IMF now estimates that the cost of the bail-out of Britain’s banks will amount to 13.4 per cent of the UK’s entire economic output of £1.46 trillion in 2008. Of OECD countries, only Ireland will pay more as a percentage of its output to rescue its banks. So much for Prime Minister Gordon Brown’s proud boast of having ended boom and bust cycles.
And the respected British think-tank the Institute for Fiscal Studies has warned that tax hikes are unlikely to help pay for the bailout or mitigate the consequences of recession. The institute warns that raising the top rate of tax to 45p as proposed by Brown will prompt an exodus of top earners as well as greater use of tax avoidance schemes.
The Treasury has sniffed at the institute’s prediction, saying ,“The Treasury remains confident in its forecast revenues for the new 45p rate of tax as set out.” Now is that the same Treasury that came up with all those glowing forecasts about how Britain under New Labour had found that magic to escape busts?