Call for higher taxes to cool consumer boom

Gordon Brown must raise taxes in his Budget this month to check Britain's consumer boom, analysts warn today.

The build-up of consumer debt resulting from persistent high spending is worrying some members of the Bank of England's monetary policy committee.

The average household owes £32,500, of which £23,600 is mortgage debt, analysts at Deutsche Bank say in their UK Economic Focus review. "Households are now net borrowers of around £7bn a month, an impressive amount by anyone's standards," said Ciaran Barr, chief UK economist at the bank.

Although rates need rise by only about a percentage point to check the boom, Mr Barr believes there is a danger that consumers would ignore higher borrowing costs. "It does not require a creative imagination to foresee a situation in which the resulting level of consumer interest rates is not sufficient to slow the spending juggernaut.

"As such, there is clear risk of a 'ruler effect', in which the MPC increase rates steadily in a vain attempt to slow the consumer until, suddenly, the whole process snaps as con sumers finally buckle."

A better option would be for Mr Brown to target consumers in his Budget. "The chancellor should raise personal sector taxes by £4bn-£5bn on April 17 to take some of the pressure off the MPC," Mr Barr said.

Even if Mr Brown gives the extra revenue to boost public spending, higher taxes would cool consumer spending, said Mr Barr.