Brown warned over 4p tax hike

During the election Brown pledged no income tax rises

Chancellor Gordon Brown will have to raise billions through tax increases to avoid public spending cuts ahead of the next general election, an influential think-tank has warned.

Without rises equivalent to 4p in the pound on the standard rate of income tax, the government "will lose its reputation for prudence", says the Institute for Public Policy Research (IPPR).

In headline terms the equivalent of a 4p increase in the standard rate of income tax

Peter Robinson

The organisation, which has close links to Labour, is publishing a strongly worded assessment later this year ahead of the party's annual conference.

The report's author, IPPR chief economist Peter Robinson, said the government would need an extra £14bn to maintain public spending at the current rates of increases between 2004 and 2006.

"In headline terms the equivalent of a 4p increase in the standard rate of income tax," said Mr Robinson.

Meanwhile IPPR director Matthew Taylor said: "If the government is going to maintain the level of increases in expenditure in health, transport and so on and the policies it has taken on child poverty, it will have to increase expenditure.

Prudent tax rises?

"And to do that while being prudent it will mean fairly substantial rises in taxation."

The early release of the report's conclusions may be linked to the fact that the chancellor is thought to be about to begin his next public spending review, due to be completed by summer 2002.

The report echoes attacks on Mr Brown's spending plans by the Conservatives and Liberal Democrats during June's general election campaign.

The IPPR are also critical of so-called stealth taxes.

"One way for a Labour government to signal its progressive intentions explicitly - and avoid charges of stealth taxes - would be to index tax allowances to inflation while indexing benefits to earnings."

The think-tank also calls on the government to take a look at the way public spending is distributed across regions - a move which would result in "relative winners as well as relative losers".

Critical friend?

IPPR is increasingly casting itself in the role of a critical friend to New Labour.

Already this summer it has cast doubt on the viability of stakeholder pensions, saying the scheme might not be reaching the right people.

At the time Mr Robinson said the current system of stakeholder pensions was "so complex" that people had difficulty understanding it.