Brown’s Last Budget Cuts and Raises Income Tax for Poor

Gordon Brown has been one of Britain’s more accomplished Chancellors of the Exchequer. Without his financial and fiscal engineering, the New Labour experiment would have collapsed under its own inability to pay the bills. In what is likely to be his last budget before becoming Prime Minister, Mr. Brown has managed to cut and raise taxes on the poor simultaneously. He claims they could be £250 better off; others are doubtful.

The budget has been dubbed the “Twopenny Budget” [Note to American readers: pronounced “tuppeny”] because the Chancellor has reduced the basic rate of income tax from 22 pence in the pound to 20p effective in April 2008. This is the lowest rate in 75 years – something Mrs. Thatcher never achieved. This is his tax cut for the working poor and the retired, along with a small tax credit for the poorest. This will cost Her Majesty’s coffers on the order of £9 billion.

His tax hike comes with the abolition of the 10% starter tax rate, meaning that once income exceeds the personal deduction, taxpayers pay at the 20% rate. This will bring in an additional £8 billion or so. Given increases in taxes for alcohol, cigarettes and fuel, the budget is roughly revenue neutral. Mr. Brown even maintains “For people who are lower earners the tax credit wipes out the income tax liability and that's why lower income workers are better off now as a result of what we have done as a government.”

David Cameron, the leader of the Conservative Party, wasn’t buying it. He told Mr. Brown in the Commons exchange that followed the presentation of the Budget, “You are the chancellor who has taken one tax down but put 99 taxes up. The average family is paying £1,300 more because of your Budget decisions.” Mr. Cameron probably isn’t exaggerating since Mr. Brown has made 10 years’ of Budget decisions.

Sir Menzies Campbell, leader of the Liberal Democrats, ensured that his party remained to the left of Labour, pointing out, “if you look very carefully, the revenue to justify that reduction is obtained by the abolition of the 10p rate. What is happening is we’re increasing income tax for many tax payers in order to fund a reduction from 22p to 20p. We are asking the poor to subsidise the rich.” He added, “This Budget was an opportunity to rebalance the tax system in favour of the less wealthy and the chancellor has failed to do that. This should have been a tax cutting Budget. It should have cut the tax burden on low and middle income families that need it most. That’s the true moral case for tax cuts and it’s a matter of regret that the chancellor chose not to do so.”

The Chancellor will almost certainly become Prime Minister when Mr. Blair steps down later this year, and it will fall to someone else to deal with the Budget next year. Mr. Brown has done excellent things for Britain’s fiscal position and its domestic investment, and he has even managed to pay for a war in Mesopotamia. This Budget, though, seems to be an exercise in caution unworthy of him.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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