GORDON BROWN’S move to switch the Bank of England’s inflation target later this year could open the way for him to impose steep increases in “sin taxes” on cigarettes, alcohol and petrol.

Leading City analysts gave warning last night that the technical move, under which the bank will adopt a new EU inflation target, could give the Chancellor leeway to raise an extra £4.5 billion in tax duties.The move could mean 5p on a litre of petrol, 11p on a bottle of wine, 3p on a pint of beer, 55p on a bottle of spirits and 30p on a packet of 20 cigarettes.

The scope to raise duties will alarm pressure groups. Fuel protesters threatened to retaliate with disruption of the sort that brought the country to a standstill three years ago.

The switch in the inflation target is to be confirmed by the Chancellor in his Pre-Budget Report next month. Analysts say the move will make it easier for him to impose higher indirect taxes because inflation will immediately move from being substantially above the present target to below the new benchmark.

The existing inflation measure, the Retail Price Index less mortgage interest payments, known as RPIX, stands at 2.8 per cent, 0.3 per cent above the target. Because any rises in duty quickly feed through, any budget increases would threaten to push inflation further above the Bank’s objective, raising the risk that a new interest rate rise could come sooner than otherwise.

However, the new inflation gauge, the Harmonised Index of Consumer Prices, or HICP, now stands at just 1.4 per cent, far below the 2 per cent target expected to be set for the Bank by Mr Brown next month. The yawning gap means that the Chancellor could safely raise duties without the awkward fallout of pushing inflation above the new target.

Based on the impact on HICP inflation, ING Barings and Capital Economics calculate that Mr Brown could increase all “sin taxes” by 10 per cent across the board. The impact would lift HICP inflation just to the new target, but would raise £4.5 billion — equivalent to more than 1.5p on basic rate income tax.

Mark Cliffe, of ING, said: "The HICP switch could give the Chancellor a timely opportunity to raise revenue without causing an embarrassing jump in inflation."

Jonathan Loynes, of Capital Economics, said: “Although the Bank is likely to look through the effects of tax changes, the Chancellor might nonetheless feel he has greater scope for raising taxes than under the old regime.”

But with duties on petrol, alcohol and cigarettes already raking in £26 billion a year, any duty rises would prompt a backlash. A 5p rise on a litre of petrol would be certain to trigger a new round of fuel protests. Paul Ashley, spokesman for the People’s Fuel Lobby, who took part in the protests three years ago, said that a substantial rise would “cause outrage”.

David Williamson, of the Scotch Whisky Association, said: “The Government’s own evidence shows that spirits tax is already at a level where there is nothing to gain from a tax rise. Such a move would only serve to damage the industry’s competitiveness.

Quentin Rappoport, the director of the Wine and Spirit Association, said: “This is not a goose which you can get a golden egg out of.”

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