BOE warns over further taxation cuts

Date: 25th March 2009

The Bank of England has warned the government not to implement further taxation cuts or widen public spending.

Appearing before the Treasury select committee, governor Mervyn King demanded that the prime minister and chancellor resist introducing measures which could inflate government debt at next month's budget.

At November's pre-budget report, Chancellor Alistair Darling unveiled a 13-month, 2.5 point cut in VAT.

Mr King said: "There is no doubt we are facing very large fiscal deficits over the next two to three years.

"Given how big those deficits are, I think it would be sensible to be cautious about further using discretionary measures to expand the size of those deficits."

He suggested that the UK's economic position would not lend itself to "another significant round of fiscal expansion", such as the multi-billion pound banking bail-outs seen in recent months.

Earlier this week, Conservative leader David Cameron hinted that his party would introduce a higher band of taxation for the UK's top earners.