Fears over capital gains tax increases and reductions in relief on pension contributions were spurred yesterday following the Prime Minister’s warning over the deficit.

David Cameron warned of ‘painful’ times ahead as the Lib-Con Government prepares to deliver its emergency Budget on 22 June.

According to Cameron, the deficit is ‘even worse’ than previously feared, and on current trends, Britain would be paying £70billion a year in interest on the national debt by 2015.

Giving reasons for the urgent tackling of the £770billion deficit, Cameron explained that the more the Government borrows, the more lenders will worry over our ability to repay, meaning less confidence in our economy.

“And when confidence in our economy is hit, we run the risk of higher interest rates,” he said.

Adding: “The most urgent problem facing Britain is that higher interest rates hurt every family and every business in the land.

“They mean higher mortgages and lower employment.

“They mean that instead of your taxes going to pay for things we want, like schools, hospitals and policing your money, the money, the money you work so hard for, is going on paying the interest on our national debt.”

As a result, the Government needs to raise funds and cut spending. In his speech, Cameron pointed the finger at the Labour Government for increasing benefit spending by more than £20billion and giving some families as much as £93,000 in housing benefit every year.

However, other areas will be targeted, and capital gains tax is one area where speculation is rife. The current flat rate of 18 per cent on any capital gains in excess of £10,100 looks set to increase to 40 per cent, although measures are likely to soften the blow for long-term investors.

Other areas the Government is likely to target is tax relief on pension contributions, particularly for higher earners, as higher rate relief currently costs the Exchequer £20billion a year in lost revenue.

Commenting on the Prime Minister’s speech, the Institute of Directors said: “It is particularly important in the emergency budget that the Government sets out – in line with the Conservative manifesto – a deficit reduction plan with a 4 to 1 ratio in favour of spending cuts over tax rises.”

© Fair Investment Company Ltd