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Tax fears as government's deficit predicted to widen

Income tax could be put up by 5p as the government's deficit expands, it has been claimed.Ray Barrell at the National Institute of Economic and Social Research said that the economic downturn - and the ongoing slump in the financial services sector - could leave ministers with a severe shortfall to make up, the Sunday Times reports.Two separate studies also show that the government is facing severe money worries due to the credit crunch.The Centre for Economics and Business Research said in a report today that the deficit would hit £90 billion - while Capital Economics suggested that the shortfall could even reach £100 million.Severe volatility on the financial markets over recent days, which also led to HBOS being taken over by Lloyds TSB at a steeply-reduced £12.2 billion, has been widely seen as a symptom of worsening credit crunch conditions.Libor, a key indicator of how much banks trust each other to lend to, has also soared to six per cent.Despite all these problems, the chancellor of the exchequer denied today that taxes would be put up.Alistair Darling said: "This is not the time to be imposing additional burdens and indeed actually, this month, the vast majority of basic rate taxpayers, the 22 million people, are actually getting a tax rebate, a tax cut."I really don't think I can make the position any clearer than that. Basic rate taxpayers are receiving a tax cut."

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