Tax bomb has started ticking

With government spending now so far beyond any previous targets as borrowing heads towards 11% of national income (the highest among the G7 countries) and the public finances deteriorating daily as tax receipts plummet, the tax timebomb is ticking. Fear of its potential damage to the economy has already tipped the Conservatives into state of public confusion. On Saturday, shadow chancellor George Osborne said that a 45% Income Tax band was inevitable, even though that would be little more than a flea bite on the bloated public sector deficit. Yesterday, Kenneth Clarke, recently restored to the Conservative front bench as shadow business secretary, suggested that the previous Tory commitment to raise the Inheritance Tax threshold to £1m could be jettisoned. This was clearly too much tax in one weekend for the  Tories and Mr Clarke was busy "clarifying" his remarks this morning saying that the £1m threshold would be in the next manifesto.

The simple truth is that taxes will have to go up almost as soon as any recovery looks secure. The real questions are by how much, how fast and how can it be done in such a way that the government doesn't promptly push the UK economy back into reverse. The minor turbulence that has disturbed the Conservative revival this weekend will be nothing as the tax bomb ticks ever louder over the coming months.