Brown refuses to rule out tax rises

Gordon Brown today refused to rule out future tax rises after an influential economics report predicted a £10bn shortfall in Treasury revenues - the equivalent of 3p on income tax.

The Organisation for Economic Cooperation and Development (OECD) warned that Mr Brown may have to raise taxes or cut public spending as growth slows over the coming year.

The influential international body downgraded its forecast for UK growth in 2005 from 2.5% to 1.7% - almost half Mr Brown's budget prediction of 3%-3.5%.

The move puts pressure on the chancellor's forthcoming pre-budget review, which is expected in late November or early December.

A date for the annual forecast may become known today at Treasury questions.

Interviewed on BBC Radio 4's Today programme this morning and pressed on whether he could rule out tax rises before 2008, Mr Brown said: "I think at the last election even the Conservative party said they could make no absolute promises about these issues.

"The last person who did so was John Major, and he regretted it.

"But what I can say to you ... is that our public spending plans that we have set out are perfectly affordable, and actually we have got lower deficits and lower debt ratios than Japan, America, France and Germany. And I think our public finances are in a better position than these countries."

The OECD noted that the Treasury was relying on improved corporate profitability to meet its tax projections, warning that if these extra revenues from business failed to materialise then "additional measures" - tax rises or spending cuts - would be needed if the chancellor was to meet his fiscal requirements.

Mr Brown has already indicated that he recognises the UK economy will fail to hit his ambitious budget forecast, saying that he will "update" the prediction in his pre-budget report this autumn.

Mr Brown was asked whether he could avoid raising taxes, cutting public spending or increasing borrowing.

He told the programme: "On public finances, our spending programmes are affordable: they have been costed; they have been set out in detail. We are working within these spending programmes and therefore we will be able to afford what we have set out to the years right through to 2008."

The chancellor said consumer spending continued to rise, but he admitted: "It is not rising as fast as it did last year.

"The reason is, we had four interest rate rises before the general election. The reason also is that people are being squeezed because they are having to pay for a doubling of oil prices."

Mr Brown was asked about recent comments by the Bank of England governor, Mervyn King, stressing that despite the government's claim boast to have ended "boom and bust" economics, the business cycle had not been abolished.

The chancellor said: "I would be the first to say that. Nobody ever said that the business cycle has been abolished."

Meanwhile, writing in the Financial Times to publicise a 7,000-word pamphlet he has written, he says Europe's current economic system "is not working" and needs "fundamental" reform.

His remarks echo the arguments put forward by Tony Blair when the UK took over the rotating six-month presidency of the EU in the summer. Mr Blair criticised low growth rates, high unemployment and the "social model" of high welfare spending, in Germany and France in particular.

Today Mr Brown, ahead of a meeting of EU leaders at Hampton Court later this month, writes that "the time for debating European economic reform is over" and warns: "Now is the time for action."

Calling Europe's 1.2% growth rate this year "a wake-up call we cannot ignore" and the summit a "make-or-break" event, Mr Brown writes: "An old model that leaves 20 million unemployed, 10 million of them for more than a year, is not working."

In the pamphlet - Global Europe, Full Employment Europe - Mr Brown urges the EU to "rapidly complete the single market in energy, utilities, telecommunications and financial services".