Tax increase ‘may prompt double dip recession’

If the government increases taxes on businesses, the risk of the economy falling into a double dip recession could be heightened, one sector commentator has warned.

However, Michael Baxter, editor of Investment and Business News, admits this was an inevitable consequence as the government needs to increase such duty to raise money and there does not appear to be an alternative.

Looking to plans to increase National Insurance contributions, he warned this could also be counterproductive, as it added up to a tax on jobs, “which is never a good idea”.

But Mr Baxter went on to ask: “What is the alternative? An increase in VAT and a reduction in National Insurance – yes, I could understand the argument. But can you imagine the headlines? It would take a chancellor with an awful lot of guts.”

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His comments come after the British Chamber of Commerce revealed 41 per cent of companies responding to its Monthly Business Survey believe that an incoming government should make reducing the budget deficit its number one priority.

Furthermore, just six per cent of respondents felt that a National Insurance contributions rise would be the least damaging tax increase to be imposed on them, compared to 36 per cent for VAT.