Brown to blame Germany for UK woes

Gordon Brown is expected to draw Germany into a Budget row over whether it is his fault or theirs that UK government finances are in a worse state than he had predicted.

Combined with the National Insurance increases announced last year, which come into force tomorrow, and the latest round of council tax rises, this week's Budget will amount to what the Shadow Chancellor, Michael Howard, has called a "triple whammy" for British tax payers.

But the Chancellor is expected to make a pointed reference to a leaked report, published in the German newspaper Der Spiegel, suggesting that EU forecasts for economic growth have had to be revised downwards.

The revised forecast, according to Der Spiegel, is that Germany's economy will grow by only 0.4 per cent in 2003 – dramatically less than the modest 1.4 per cent previously forecast. The forecast for France has also had to be reduced from 2 to 1 per cent, and for euroland as a whole from 1.8 to 1 per cent.

The implication, Mr Brown will suggest, is that the UK has been doing well compared with other EU countries, and it is not his fault that he, too, is having to revise his economic forecasts downwards. The Tories will accuse him of trying to blame the Europeans for his own incompetence.

Mr Brown's words are likely to be seized on by City analysts as another hint from the Chancellor that there will be no referendum this year on whether Britain should join the euro. The Treasury yesterday refused to be drawn on a Westminster rumour that Mr Brown will also announce the date by which the Treasury intends to complete its assessment of whether the UK and euroland economies are sufficiently converged for their currencies to merge.

It is expected that Mr Brown is also going to have to revise UK growth forecasts downwards to around 2 per cent, having claimed last autumn that the economy would grow by 2.5 to 3 per cent.

Mr Howard said: "When he made his forecasts, Gordon Brown knew war was likely. The Chancellor also knew about the damage he had done to an economy made increasingly fragile by his policies. Nonetheless he forecast growth of a far faster rate than independent commentators.

"If the economy grows slower than he predicted and borrowing has to rise again, then he must accept responsibility for getting his forecasts wrong."

With tax revenues falling a long way below what he had expected, Mr Brown will announce a new crackdown on tax evasion and fraud.

One of Mr Brown's forecasts which appears not to have come true is that, by appointing 340 extra Customs officers, he could save the Government billions of pounds by cutting VAT fraud.

His assumption was that VAT fraud would fall by £390m in the current year, rising to £1.42bn in two years. But figures released by the Liberal Democrat treasury spokesman, Matthew Taylor, suggest that since September 2000, when the extra officers were appointed, VAT fraud has actually continued rising.

Mr Brown's emphasis this time is likely to be on tackling loopholes that enable the wealthy to avoid paying national insurance and delay paying their taxes.

The Fabian Society, a Labour think-tank, also urged Mr Brown in a pamphlet published yesterday to attack the loopholes that allow the very rich to pass property on to their children without paying inheritance tax. However, Treasury sources indicated that it is unlikely Mr Brown will announce any significant changes to UK inheritance tax.