Each year, it seems that Gordon Brown has little room for manoeuvre and yet each year he manages to convince many journalists that he has dished out money and pulled off a triumph. He always seems to have some extra money to spend.
Where does the extra money come from?
It comes from various places, but nearly always from two places in particular.
First, he does not raise tax thresholds in line with the growth of the whole economy. He just raises them with inflation, which is less because it does not include economic growth. This means that - as the country becomes richer - he takes a higher proportion of national income in tax. Through his failure to raise income tax thresholds in line with the economy, he has made an extra 1.35 million people liable to higher rate income tax. A higher proportion of people's income has become liable to standard rate income tax (the personal allowance for next year will be less than £4,900 whereas, if it had been increased with earnings since 1997/98, it would be over £5,500). Although he has doubled the stamp duty allowance in this budget, throughout his time in office until today, more people have become liable to stamp duty on their house purchases - and it continues to be the case that many have crossed the thresholds to higher stamp duty rates. So it goes on and on. Inheritance tax is another one that has had the Gordon Brown treatment. All these failures to raise threshold in line with the economy, amount, in reality, to tax increases. They are increases in the proportion of national income that the nation pays in tax.
His second technique is to raise welfare benefits, too, in line with inflation - not in line with the economy. So gradually, he has cut welfare benefits in relation to the whole economy.
That is how he gets extra money every year. He taxes us more, without declaring it, and he pays out lower benefits, without declaring that either. To some, he seems clever. But all he is doing is giving us back some of the money he has taken. Most commentators have no understanding of what is going on and therefore cannot pass on a true understanding to the public.
Does it matter?
Yes, it does rather. It is much better to avoid taxing people in the first place than to require them to fill in forms to claim tax back. The latter method involves an expensive bureaucracy and many of the people who are entitled to tax credits do not claim them. Often these are the poorest, oldest or least able. For him to paint himself as acting for their benefit verges on the obscene.
Posted by James Bartholomew • Indexed in Tax and growth
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Of course the political impact of these policies is even more insidious, potentially disasterous,and equally ignored. Gordon Brown's policies (and previous chancellors too, to be fair) have had the effect of creating a vast section of the population who receive benefits, and feel at some level beholden to the state. There is now a huge in-built bias against doing anything to cut back the reach of the state - why would anyone in receipt of benefits vote to reduce their income?
Does this matter? If the rest of the world stood still, then no it wouldn't. Bu there are millions of workers in less developed countries who are educated, flexible, cheaper and want the standard of living that we have.
What's to be done? Evidence-based politics, or as Tony Blair said 'What matters is what works'. Nothing less thant the wholesale redesign of the role of the state based on the best evidence from around the world - Perhaps it is time for a written constitution.
Posted by: Richard at March 29, 2005 03:05 PM