Tax burden in Britain greater than in Germany

The tax burden in Britain now exceeds that in Germany, figures released on the eve of the Government's pre-Budget report reveal.

Gordon Brown, the Chancellor, will call for a national debate tomorrow on how Britain will meet the rising cost of the National Health Service. He will rule out immediate tax rises during the current downturn as efforts are made to counter the economic effects of the international terrorism crisis.

However, a separate review of the long-term demands on the NHS will stress the huge pressures it faces to maintain and improve services, raising the prospect of higher taxes within the next three years.

But Mr Brown has little room for manoeuvre, which was underlined yesterday by new figures from the House of Commons indicating that tax revenues in Britain now account for a higher proportion of the gross domestic product than in Germany.

According to the calculations by PricewaterhouseCoopers, taxes represented 37.7 per cent of Germany's GDP in 1999, compared with 37.4 per cent in Britain. But it projects figures of 36.2 per cent for Germany this year and 37.8 per cent for Britain. Britain's tax burden is moving slightly upwards, while the figures show that it is falling in most EU countries.

Michael Howard, the shadow Chancellor, said: "Labour is increasing the tax burden on individuals while hitting businesses with a stream of new taxes, red tape and regulations. The tax advantage we used to enjoy against our European neighbours is being eroded."

A Labour spokesman said the statistics ignored other European governments' reliance on revenues from sources other than tax. "The tax burden is falling, not rising, and it's lower than it would have been under the Tories' plans," the spokesman said.

In the pre-Budget report, the Chancellor will cut previous forecasts for economic growth, but insist that any shortfall can be made up by extra borrowing rather than higher taxation.

An interim report on NHS funding by a former NatWest Bank chief executive, Derek Wanless, will paint a daunting picture of the problems posed by the rapid development of new medical procedures and an ageing population. The full report, to be published next year, is expected to make a strong case for substantial extra taxation. The political problem for Mr Brown is that pressure for higher taxes is likely to coincide with the next election campaign.

The Chancellor will flesh out his plans tomorrow for tax credits aimed at encouraging families with children to move from benefits into work.

There will be extra help for pensioners, including a firm commitment to pay a £200 winter bonus every year of this parliament. Punter-friendly moves will include scrapping tax on pools coupons and trimming the duty on beer produced by small breweries.

Digby Jones, director general of the Confederation of British Industry, said he hoped Mr Brown would not expect business to shoulder the burden of extra spending. But Bill Morris, general secretary of the Transport and General Workers' Union, called for Mr Brown to step up investment in schools and hospitals.