View from City Road: Not ready for the coming tax shocks

The Confederation of British Industry's quarterly trends survey will reinforce any determination in the Bank of England and the Treasury to resist an early cut in interest rates.

As usual, the latest crop of indicators present mixed signals. Retail sales volume in December was disappointing, but manufacturing output and gross domestic product are growing steadily, if too slowly. The CBI result weighs down more on the side of the optimists.

The real question, though, remains what is going to happen in April when the full impact of the two budgets' tax increases take effect in pay packets. The clever argument is that consumers have been expecting precisely such a rise all along and have certainly been astute enough already to tailor their spending accordingly. Hence there will be very little impact from the tax increases.

However, the current furore over taxation suggests something rather different. There was nothing surprising about the revelation that the tax burden is higher under the Conservatives than it was under Denis Healey in 1978-79. The total tax take as a share of non-oil national income has been higher in 11 of 15 Tory years than in any Labour year between 1974 and 1979.

The surprise is that this fact, reported in opposition newspapers through most of the Eighties, has begun to appear in Conservative ones.

The second reason for supposing that consumers are unready for April's fiscal shock is the apparently unprecedented level of queries to tax offices about the new Paye codings that begin to land on doormats. Certainly, consumers' spending should not grow so quickly as to suck in excessive imports and imperil the trade balance, but some growth is essential if the economy is to continue to deliver falling unemployment.