Tax rises 'will be needed'

Date: 22nd July 2009

Significant tax rises for business and consumers could be necessary to tackle public borrowing, which could hit more than £165 billion this year, a thinktank has warned.

The National Institute of Economic and Social Research (NIESR) said that this figure was 12 per cent of the UK's total GDP and added that it could remain above £120 billion over the next four years.

Higher taxation and spending cuts are likely to characterise government policy in the years to 2013-14, the group forecast, in order to cope with rising debt levels.

"With the rapid accumulation of debt under way, debt interest payments are also expected to increase as a share of GDP over the next few years," the NIESR said.

"This suggests that spending on goods and services by the state will have to be squeezed significantly."

Most recent figures from the Office for National Statistics show that GDP fell by 2.4 per cent in the first three months of 2009, the biggest quarterly decline in 50 years.