Will income tax have to rise?

An interesting article in the Times newspaper today raises the possibility that the Chancellor will need to raise taxes by £8 billion in order to keep government spending within the target of 40% of GDP.

£8 billion sounds like a lot of money.  Actually this would represent 2p on the basic rate of income tax.

The claim is made by the Institute for fiscal studies (IFS). The IFS estimate that the government may need to borrow 40 billion in each of the three coming years.  This is because taxes from sources such as income tax receipts and corporation tax (charged on company profits) are likely to be lower than the Chancellor estimated at the time of the last budget.

As a business student, it is important to understand the connection between government spending government taxes and consumer spending.

An increase in income tax would leave households with lower disposable income, and this would probably result in lower consumer spending (less demand for goods and services).

Will the Chancellor raise taxes? We’ll have to wait and see.

Click here to read a useful newspaper article

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