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UK `could join EMU early by raising taxes'

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Sunday 12 October 1997 18:02 EDT
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The UK could join European economic and monetary union in the first wave on 1 January 1999 if the Government raised more than pounds 3bn in extra taxes, according to a report based on the Treasury's own economic model published today. The Ernst & Young Item Club concludes in its latest forecast that the sharp fall in interest rates needed to sign up could be countered by abolishing mortgage tax relief and raising council tax by more than 20 per cent.

The abolition of tax relief on mortgage interest would add pounds 240 a year to the average household's mortgage bill, while two successive 10 per cent rises in council tax would equal a pounds 144 rise on a mid-priced property over two years. The report says "moderate but targeted" fiscal tightening would be sufficient to allow the UK to join at a rate of DM2.85. Despite the tax increases, consumers and businesses would benefit from falling inflation and lower interest rates, the report said. It predicted interest rates would fall to 4.5 per cent in EMU.

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