Tax rebate could ease UK out of recession

A short-term tax rebate would help the UK out of recession, a report out today from the National Institute of Economic and Social Research (NIESR) think-tank will say.

Ahead of Wednesday’s pre-Budget report, NIESR claimed a rebate of around one per cent of GDP would boost economic growth by 0.2 per cent next year. It predicts a “tentative recovery” of overall GDP growth by 1.1 per cent in 2010 and 1.7 per cent by 2011.

NIESR called on Chancellor Alistair Darling to rein in public spending by £60bn between 2011-14 to help halve the UK’s debt level. Raising taxes and retirement ages would also be needed. “Even after this consolidation a structural deficit of around four per cent GDP remains. Plans for an additional £60bn a year tightening are required,” the report said.

It is expected the government will raise taxes for the highest earners, leading to fears of firms fleeing the UK, said Michael Wistow, head of tax for City law firm Berwin Leighton Paisner. “We are already seeing the start of a City exodus following concerns that the 50p tax will force the rich to foot the bill for the economic downturn.” Stories of hedge funds moving part of their staff to Switzerland hint at what might be going on quietly behind the scenes, he said. “For those who stay behind, tax planning schemes will be closely scrutinised by HMRC who anticipate a tax gap between projected revenues and that which is actually recouped – in this instance HMRC expects to get 30 per cent of the potential yield.”