Income tax requires '7p hike'

To tackle the UK’s massive public debt, the basic rate of income tax should be raised by 7p in the pound, a leading think tank has said.

Failing that, the statutory retirement should be increased to 70.

The warning came from the National Institute of Economic and Social Research (NIESR), which claimed that the extreme nature of the options available to the government reflected the size of the national debt.

The NIESR estimated that the build up of government debt could hit 93 per cent of GDP by 2015.

To combat the growing deficit, the NIESR proposed that the government consider lifting income tax by 7 per cent or raising the state pension age from 65 to 70 and phasing our benefits for the over-60s.

Other severe alternatives include freezing public sector pay for five years and slapping VAT on items that are still exempt.

The policies could, the NIESR calculated, secure the equivalent in government income of 2 per cent of GDP.

Martin Weale, director of the NIESR, said: “Unless these deficits are addressed, the country will go on getting poorer and poorer, and people will eventually wonder why there isn’t enough money for their pensions.

“If people want public spending they will have to pay for it – or else they will have to decide to do without some hospitals, or heating in schools. I would be very surprised if it could be achieved through minor spending reductions.”