Labour has been pushed onto the back foot by a heavyweight report suggesting taxes will have to rise by £11 billion to pay for the government's spending plans.

In its "green Budget", the Institute for Fiscal Studies (IFS) said that the extra taxes would be necessary if the chancellor is to meet the predictions set out in last year's budget.

Following the publication of the figures, Michael Howard warned the government could seek a tax hike of £1,000 a year for a working couple on average earnings.

And the Liberal Democrats called for action to "restore credibility in fiscal policy".

But Treasury chief secretary Paul Boateng dismissed the attack, saying that "figures and forecasts from think tanks and other pundits come and go".

Green Budget

According to the IFS, the government is set to narrowly miss its "golden rule" only to borrow for investment over the course of an economic cycle.

However, if spare capacity in the economy is running low, the IFS said the cycle could end a year earlier than expected by the Treasury, in which case the targets could be met by a narrow margin.

The respected think tank also said that government borrowing would exceed government forecasts over the coming years, with revenues likely to fall short of expectations.

This year the deficit was likely to be £3 billion higher than forecast, rising to £6 billion next year.

To increase the likelihood of meeting the golden rule over the next economic cycle tax rises or spending cuts are likely to be required, said the IFS.

Higher taxes

The Conservatives said that Labour would put up taxes to make up for the revenue shortfall.

Howard warned of a tax hike of £1,000 a year for a "typical working couple".

"Mr Blair should admit that he will have to put up taxes to pay for his spending plans. The only question is which taxes?" he said.

"There will be a clear choice at the next election: more waste and higher taxes under Mr Blair, or value for money and lower taxes with Conservatives."

Independent review

Lib Dem Treasury spokesman Vince Cable called for action to tackle situations where forecasters dispute the government's figures.

"The key to solving this discrepancy is to ensure that Gordon Brown can no longer get away with setting the fiscal tests and marking them himself," said Cable.

"The chancellor must restore credibility in fiscal policy by opening it up to genuine independent evaluation by a body accountable to parliament, like the NAO.

"I urged the government to do this at the time of the pre-Budget report and the Conservatives were quick to adopt our proposals.

"It is high time that we saw the same action from the chancellor."

Record defended

Defending the government's record, Boateng said that think tank forecasts "change week by week".

The minister said that the government would "continue to meet our fiscal rules".

"So on our foundation of economic growth, low inflation, low unemployment and sound public finances, it's clear that all the government's spending plans, set out through to 2008, remain fully affordable," he said.

"And the party whose figures do not add up, is the Tory party.

"The savings they claim to have found through the James review do not add up, so no one will believe their claim that they can cut taxes, cut borrowing and increase spending all at the same time.

"That is why the only guaranteed cut you'll get from the Tories is a massive and immediate cut to investment in vital front line services such as schools, hospitals, transport, the police and defence."