Tax rises or public spending cuts, warns economist

Date: 13th October 2008

British taxpayers face either heavy tax rises or major cuts in public spending, according to a senior economist.

The Treasury announced last week that an initial £25 billion would be offered to banks in the way of a rescue package, yet this morning's (October 13th) £37 billion payment to three lenders has already exceeded this.

This news has led to anxieties that the amount of debt being taken on by the Treasury could lead to a surge in taxes.

The chief European economist with Capital Economics, Jonathan Loynes, said: "At some point in the future, very heavy tax increases or spending cuts will be required to get the public finances back into a sustainable position."

Despite his concerns, Mr Loynes admitted that financial services bail-out could be successful if it managed to kick-start the economy.

Chancellor Darling said last week that the intention of the rescue plan was to encourage long term lending and reinvigorate investor confidence.