Magazine article The Spectator

A Radical, Reforming Budget? No - It Was Tax-and-Spin as Usual

Magazine article The Spectator

A Radical, Reforming Budget? No - It Was Tax-and-Spin as Usual

Article excerpt

Gordon Brown's 11th and final Budget was a masterpiece of spin and obfuscation, with his headline-grabbing reductions in the basic rate of income tax and corporation tax more than made up for by a series of stealth tax raids. On that point, my friends and I are in complete agreement. But for the first time since I began writing about the British economy, some of the economists and think-tankers I most respect have broken ranks with the rest of the Chancellor's critics.

To many free-market policy wonks, the fact that Brown has dared to break a central taboo of modern British politics by cutting direct tax rates easily makes up for the odd stealth tax. They also applaud what they see as a move towards flatter and simpler taxes. And it would indeed be absurd to dismiss this Budget as unsound in its entirety.

Yet I cannot agree that it should therefore be welcomed. For all its pretensions to radicalism, it will continue the gradual resocialisation of the British economy begun a decade ago. Take the tax burden: the overall effect of the changes introduced last week was to increase Brown's net revenues by £280 million in 2008-09 and £125 million in 2009-10. The tax burden, which was 34.8 per cent of national income in 2006-07, is now forecast by Brown to hit 38.1 per cent in 2009-10, the highest level since the recession of the early 1980s. This will continue to drag down the economy and erode Britain's competitiveness.

Even the good news on simplification was spoilt by the way the reforms were structured. Looking at the combined effect of income tax and national insurance, there will be three main rates of direct tax under Brown's reforms, down from five at present. There will be nothing to pay on the first few thousand pounds of earnings; 31 per cent on the next £40,000 or so; and a top rate of 41 per cent on earnings above that. It would have been possible to design a move towards flatter taxes with no losers, but Brown has used the exercise to push through steep tax increases on the poor and the middle classes. The tax rate for earnings between £33,500 and £38,335 will increase by no less than 8p in the pound, while the abolition of the 10p starting band means that the tax rate on the first few thousand pounds of earnings has doubled to 20 per cent, hitting the poor.

The same pattern can be seen in the changes Brown made to company taxes. …

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