GORDON BROWN refused yesterday to rule out possible tax increases in the light of a new warning over slowing economic growth.

In a survey of the British economy, the Organisation for Economic Co-operation and Development said that the Chancellor may have to raise taxes or cut public spending as growth slows over the coming year.

It downgraded its forecast for British growth in 2005 from 2.5 per cent to 1.7 per cent, well below Mr Brown’s Budget prediction of 3 to 3.5 per cent.

Mr Brown has already indicated that he recognises the economy will fail to hit his ambitious forecast, saying that he will “update” the prediction in his Pre-Budget Report this autumn.

Pressure on Mr Brown to pledge not to raise taxes in the PBR or next spring’s Budget was stepped up by business yesterday as its latest snapshot of economic conditions showed an “alarming” picture of weakness across the country.

The British Chambers of Commerce said that bleak news from manufacturing and a lacklustre showing by the services sector in its nationwide survey showed that business conditions posed an “acute threat”.

Interviewed on the BBC Radio 4 Today programme, Mr Brown was asked whether he could avoid raising taxes, or cut public spending or increase borrowing. He replied: “On public finances, our spending programmes are affordable, they have been costed, they have been set out in detail. We are working within these spending programmes and therefore we will be able to afford what we have set out through to 2008.”

Pressed on whether he could rule out tax increases before 2008, Mr Brown said: “I think at the last election even the Conservative Party said they could make no absolute promises about these issues. The last person who did so was John Major, and he regretted it.

“But what I can say to you . . . is that our public spending plans are perfectly affordable. And actually we have got lower deficits and lower debt ratios than Japan, America, France and Germany. And I think our public finances are in a better position than these countries.”

Later Mr Brown shrugged off the gloomy growth forecasts and blamed rising oil prices for the current “difficulties” facing Western economies.

At Commons question time, George Osborn, the Shadow Chancellor, said that Britain was becoming less and less competitive in a more competitive world. He branded Mr Brown a “20th-century Chancellor who is running out of ideas for the 21st century”.

Mr Osborne told the Chancellor: “For months you stubbornly stuck to those growth forecasts when everyone was telling you you were wrong. Productivity growth has slumped. Business investment is at a record low and the British economy is growing slower than the average for other developed economies in the world. Could you tell us when you knew you had got it all wrong?”

Mr Brown replied: “You’ve got it wrong. The British economy is growing faster than Germany, France, the Netherlands, Italy and faster than the EU. Higher oil prices have caused the difficulties that all economies face.”

The British Chambers of Commerce sounded a warning that growth could be weaker even than that suggested by the OECD, dropping to as little as 1.6 per cent, barely half the 3 per cent-plus that Mr Brown has hoped for this year.

“Economic growth is bound to be below 2 per cent,” David Kern, its chief economic adviser, said. “At best it will be 1.8 per cent and at worst 1.6 per cent. It has become clear that Gordon Brown’s Budget forecasts are no longer in the realms of possibility.”

In its healthcheck of Britain’s economy, the OECD said that deteriorating public finances meant tax increases of perhaps £10 billion could be required “to keep fiscal policy on track”.

David Frost, Director-General of the British Chambers of Commerce, said that to do so in the midst of the economy’s present bout of weakness would only further damage prospects. “That’s the worrying thing this morning, where he is refusing to rule out tax increases. “We are saying no more taxes on business and, secondly, do you actually take money out of the economy when it is weak?”

The BCC also called on Mr Brown to ease what it called the “oppressive regulatory burden” on companies.

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