Mervyn King: Voters’ fury will banish winning party for 30 years

The stark warning comes from Mervyn King, governor of the Bank of England.

Mr King, in private remarks that emerged yesterday, has raised serious alarm about a potential public backlash over austerity measures needed to curb the Treasury’s record debt.

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His concerns come amid growing fears that the impact of the Greek government’s debt crisis is spreading across Europe, along with complaints that none of the mainstream parties contesting the election has put forward adequate plans for tackling UK borrowing.

The thoughts of the Bank of England chief were revealed as a report from leading economists predicted swingeing tax hikes equivalent to an extra 6p on the basic rate of income tax over the next decade.

The huge taxation whammy – forecast by the National Institute for Economic and Social Research – is the equivalent of an extra £1,100 a year for a taxpayer on average earnings.

Mr King privately confided his fears to American economist David Hale, who made the remarks public in an interview on Australian television yesterday.

“I saw the Governor of the Bank of England last week when I was in London and he told me whoever wins the election will be out of power for a whole generation because of how tough the financial austerity will have to be,” said Mr Hale.

Mr King’s gloomy prediction follows concerns highlighted by the Institute of Fiscal Studies earlier this week that none of the parties has put forward adequate plans for cutting annual Government borrowing of £167billion.

The National Institute for Economic and Social Research, a leading think- tank, said that drastic action was needed to reduce borrowing to below three per cent of gross domestic product by 2020.

“We assume it is achieved through income taxes rising by an equivalent of 6p in the pound on the basic rate,” said the Institute.

VAT has been seen as a likely target for a tax hike after the election, possibly ramped up to 20 per cent from the current 17.5 per cent although NIESR said VAT receipts would be held back by weak spending and higher saving.

NIESR said public sector wages would fall by almost one per cent a year for the next five years, with taxes on household incomes set to rise by around one per cent of GDP over the course of the next Parliament. But its forecasts estimate the direct tax take would have to rise by around 1.25 per cent of national output by 2020 – almost £18billion – to begin to pay down the debts built up in the recession.

Although the UK is gradually pulling out of the slump with two successive quarters of modest growth, NIESR expects unemployment – currently 2.5 million – to peak at 2.7 million next year.

Responding to the NIESR predictions, Shadow Chief Secretary to the Treasury Philip Hammond said: “This report blows apart Gordon Brown’s forecasts for growth, borrowing and unemployment.

“It shows how wrong he is to impose a jobs tax that will kill the recovery instead of getting a grip on government waste. Decisive action is required to restore business confidence and strengthen economic growth.”