Election fact check: Labour tax rise?

THE CLAIM

The Conservatives claim that Labour spending plans can not be afforded without £11bn tax increases. Shadow Chancellor Oliver Letwin said: "Because they are planning to spend more and borrow more than we are, they will have to tax more."

BACKGROUND

Labour and the Tories have both pledged to meet the "golden rule" which says that over the whole economic cycle the government should not spend more than it gets in taxes, except for investment.

The government says it will meet this rule in the economic cycle which ends in 2006, by balancing its extra spending and borrowing the last few years against the big surpluses it accumulated in the first years in government.

THE FACTS

Labour's future spending plans, as presented in the Budget in March, assume that the total amount of tax they receive will rise sharply in the next two years - faster than the overall growth in the economy.

But they say this will happen automatically, due to greatly increased corporate taxes as company profits soar, and "fiscal drag" as more people are dragged into higher tax rates as prosperity increases.

Many independent experts, including the IMF and the Institute for Fiscal Studies, are not sure that tax receipts will rise this quickly automatically.

If they don't, and the government still wanted to meet its rules, it could raise taxes or reduce spending to meet the gap.

The size of that possible gap is impossible to know as yet, but various independent experts suggest a figure of between £8bn and £11bn.

If such a gap emerged, and Labour chose to raise taxes, the Conservatives are correct that it would be the equivalent of a 2-3p increase in national insurance.

Labour has made it clear that they will not raise the basic or higher rate of income tax, or increase VAT on certain items.

THE CONCLUSION

So far Gordon Brown's forecasts for the economy have been met, and further strong economic growth will boost the public finances.

But the forecasting errors in how big the budget deficit might be are often large, and Mr Brown has been over-optimistic before.

Whether taxes ultimately have to rise will depend on both economic growth and the path of spending; it is likely that the government will remain committed to making the adjustments necessary to ensure it meets its fiscal rules.