TAX NEWS - June 2010

UK Tax: Osborne's Budget 'will make EVERY family £1,000 worse off'

Families will be an average of £1,000 a year worse off because of a combination of tax rises and spending cuts in next week's emergency Budget, it was predicted yesterday.

The warning came from the country's leading economic experts, the Institute for Fiscal Studies.

The Institute said a bleak first report from the new independent financial watchdog, the Office for Budget Responsibility, 'sets the scene for a painful Budget'.

It added that Chancellor George Osborne was likely to announce a total of £34billion of tax increases and public spending cuts. This would hit every family in Britain by an average of £1,000 a year.

The OBR report itself led to fears that Mr Osborne will have to raise £2.4million more in taxes than he had expected after predictions for Britain's economic growth were drastically cut. This would be on top of any rises in VAT or other taxes already planned by the Treasury.

Mr Osborne has pledged to stick to an 80:20 deficit reduction split between public spending cuts and tax rises.

In a stark assessment, the OBR - nicknamed the Office of Brutal Reality - took an axe to the rosy growth forecasts published by Labour in its final Budget.

The new watchdog said the economy will expand by only 2.6 per cent next year, before accelerating marginally to 2.8 per cent in 2012 and 2013 and 2.6 per cent in 2014. This is a shocking downturn on the previous forecasts for growth of 3.25 per cent in 2011 and 3.5 per cent in the following three years.

The effect is to open up a £12billion gap in Government income - equal to extra tax rises worth £2.4billion, or 20 per cent of the total figure, if Mr Osborne sticks to the 80:20 figure.