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Schroders chief economist sees tax increases in pre-Budget report

Keith Wade is Chief Economist at Schroders

Despite the usual scares about higher taxes, the Chancellor has used the Pre-Budget report to give the economy a further boost and take some of the pressure off the Bank of England&#39s Monetary Policy Commitee. His earlier caution on growth means that the Government finances are still pretty much on track and he has been able to announce spending increases for the NHS and pensioners. The Chancellor also recognised the need to help the corporate sector with tax cuts to help enterprise and announced an eye-catching abolition of stamp duty on properties worth less than £150k in depressed areas. These measures will reach the parts of the economy that the MPC have been unable to affect. They reinforce our view that the UK is well placed to avoid the worst ravages of the global downturn and should avoid recession.

Where are the risks? In an unusual departure the Chancellor cast aside his usual caution and presented a bullish view for UK growth over the next two years. His forecasts are at the top-end of consensus, opening up the risk that the economy will disappoint and we will experience a sharp increase in Government borrowing. Given the risks facing the US at present this must be a real possibility – our forecasts for UK growth are 1 per cent weaker than the Chancellor&#39s. He also waxed lyrical about the need for a world-class publicly funded Health service and how “consensus” must be reached on achieving this. By that I read tax increases.

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