Friday, 11 December 2009

Is Brown Really the Electioneering Budget Maker?

Maybe we should let the Chancellor off when we say he created a pre-election budget. It appears the title for that role goes to the man who claimed he had done away with 'boom and bust'. Yes it appears that Darling's predecessor the Prime Minister put a stop to some of the tax increases that he had intended to eat into the deficit before the general election.

There is also speculation that Brown is in denial about the depth of cuts that will be needed to claw back the borrowing that the Government has undertaken to keep the ship afloat. This is why although health, policing and education budgets will rise as announce, spending across Whitehall will actually in the words of the Chancellor remain flat. There is no cut in Government spending in actual terms, just that some departments will feel the pinch.

Mind you the decision was to go with National Insurance rises not VAT. In essence this did allow for some protection of the poorest paid, although they will suffer from the restoration of the 17.5% VAT rate. But why the avoidance of raising more through income tax? There is a little extra being raised here through freezing of the allowance for the upper band, but this is one progressive tax, that the Government have most control over. They can set the bands, and allowances as they see fit and the rates. Of course they have already removed the 10% rate to the detriment of the poorest paid.

But to do so would have been to affect the headline tax that everyone knows about. Labour have continued to tinker around with the other less high profile tax questions VAT and NI they have managed to make people pay a 32% (12% NI 20% IT) tax rate on their taxable income and that is before they get to spend it. The tax burden is still going up on the poorest paid despite efforts to protect within NI because of the regressive nature of VAT.

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