Net tax increases not as harsh as experts predicted

The Economy: PUBLIC FINANCES

With more "black holes" spotted in the public finances than in outer space recently, Gordon Brown has had plenty of excuses for a tough Budget. He did not entirely grasp them.

The net tax increases he announced, especially those falling on consumers rather than companies, were smaller than many experts had anticipated.

Even so, the path for the gap between government revenues and expenditure, the public sector borrowing requirement (PSBR), predicted in yesterday's Budget shows a sharper and faster fall than Kenneth Clarke was able to forecast seven months ago.

This has been possible despite the recent report from the National Audit Office introducing far more cautious assumptions about long-term growth, unemployment and the savings from cracking down on fraud and tax evasion.

These resulted in an addition to the expected PSBR climbing from pounds 500m this year to pounds 7bn by 2001/02.

But this extra borrowing has been more than offset by faster-than-expected growth in tax receipts since last November as the economy has gathered steam. The Clarke boom has brought Mr Brown a revenue bonus.

Thanks to upgraded predictions for the growth of money GDP and profits, the Treasury has been able to lop pounds 4bn off the PSBR forecast for this year and more than pounds 6bn next year.

With proceeds from the windfall tax also hitting the coffers before it is all spent, the PSBR is now expected to be pounds 10.9bn this year, compared with the previous forecast of pounds 19.2bn. Next year's is down from pounds 12.2bn to pounds 4bn.

In an innovation, the Treasury has offered a range of scenarios for later years, depending on different forecasts for spending growth. This seems entirely sensible, given that the Government has launched its long-term spending review.

In all cases - slow, medium and faster expenditure growth - the PSBR is projected to be in surplus by 2000/01 at the latest, and to be below the plans set out in last November's Budget.

This looks a dramatic improvement, but the bottom line judgement on how tough the Chancellor has really been is the amount by which he has deliberately raised taxes compared with the plans set out last time around. The answer is pounds 3.4bn in the current year and nearly pounds 4bn in 1998/99, excluding the windfall tax.

Most of this discretionary increase will hit business. The biggest chunk is the abolition of dividend tax credits, only partly offset from next year by reduced corporation tax.

The increase in stamp duty and reduction in Miras contribute a smaller amount - only pounds 240m this year, rising to around pounds 1.5bn a year. The additional increases in excise duties raise pounds 740m this year, declining to pounds 250m in 1998/99.

The real toughness is still on the spending side of the government budget balance.

Despite pulling his rabbits out of the hat for health and education, of pounds 1.2bn and pounds 2.3bn respectively, the Chancellor has stuck with the "eyewateringly tight" Tory spending plans for the next two years. The control totals set out yesterday are unchanged from November.

The extra funds for the top priority areas have been found from next year's contingency reserve, which is normally halved as the year to which it applies rolls around.

"The reserve is there to be spent and we knew it was going to be spent on health and education," said Geoffrey Dicks, chief economist at NatWest Markets.

Even so, Mr Brown has kept his promise - or threat - on spending. Apart from the welfare-to-work plans for which the windfall tax has been earmarked, there is no fresh increase in expenditure set out in the Budget.

The share of government spending in GDP is therefore forecast to decline to below 40 per cent of GDP by the end of the century.

However, to the extent that the Treasury's forecasts, validated by the National Audit Office, are over-cautious about future growth in tax revenues, the Government will have scope for extra spending in later years.

For example, the Treasury has reverted to its assumption that unemployment will stay flat, whereas in fact it is falling smartly.

Likewise, the return to the forecast of 2.25 per cent for the economy's trend growth rate will probably prove too gloomy. If so, there will be a faster increase in tax receipts as the economy expands.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

Profiteering? British Gas customers hit again as energy giant fails to pass on profits hike

The company made £63 a second but is only passing on £37 a year cuts to customers

China's stock market has tanked in the last month, losing 30 per cent of its value

China's stock market crash, Greece crisis: how do they affect your finances?

Video: Tom Stevenson, investment director at Fidelity Worldwide Investments, says it’s good to be aware of what’s going on in the world

Payday lender Cash Genie forced to repay £20m to ripped-off customers

The high-cost credit company preyed on vulnerable people struggling because of the recession

Mark Carney warns that the decision is likely to come into 'sharper relief' by 'the turn of the year'

An interest rate rise may be on the way - act now to secure a better mortgage deal

Competition has driven rates down but they could start drifting upwards

Santander 123 is attractive for those seeking interest on credit balances

Switching your current account? Pick one that reflects the way you run your finances

Andrew Hagger has carried out some research to try to establish which accounts are strongest in each of the different areas

A reader hit trouble after booking accommodation in a St Andrews hostel for the Open

Questions of Cash: 'Golfing break landed in the bunker when the price on the booking site was way below par'

One reader encountered a problem when booking accommodation at the St Andrews Tourist Hostel through HostelBookers

The Money Shop this week became the latest payday lender to have an ad banned

Payday lenders slammed for 'misleading' claims: charities say they're still not doing enough to help borrowers

Debt charities say there seems scant evidence to back up CFA's latest report

The crooks, like these in the 1955 film The Ladykillers, are waiting in the shadows as people cash in their savings

Savers are embracing their pension freedom ... and so are the scammers

There have been fresh warnings that scammers are trying to trick people into using liberated cash to invest in dodgy schemes

Don't get burnt: holidaymakers should check their plastic

How to avoid costly debit or credit card charges on overseas trips

Taking the wrong plastic can be a costly mistake, leaving you paying over the odds for your holiday spending money to the tune of £68, maybe more

From as far back as the Seventies, women have been drawn to the tables, attracted by the sense of feeling like a celebrity

Gambling is on the rise - so is enough being done to combat problem betting?

More and more of the 'AB' classes are joining the vulnerable in playing the odds, as Neasa MacErlean reports
No sunshine: Not all pensioners will be as happy as these women

Freedom reform leads to £1.8bn run on pension pots

But the right of over-55s to withdraw their retirement nest-eggs opens the door to scammers.

Mark Carney; '[there is] no immediate need to increase interest rates'

Interest rates: five things you need to know about a rise in rates by the end of the year

Mark Carney said the decision to raise interest rates was likely to come by 'the turn of the year'

Viagogo struck a discordant note when tickets for Ed Sheeran didn’t arrive

Viagogo withdraws tickets from sale the day before Ed Sheeran's concert, and the story repeats

Ticket frustration a go-go as gig-goers are let down again. Funny how bad publicity helps 

Just 39 per cent of 25-45 year-olds own a home in London, which has the lowest rates of young homeowners in the country (Getty)

Have you been given the wrong mortgage? City Watchdog says it is 'unclear' why two-fifths of loans were recommended

Stringent new rules were supposed to stamp out mortgage mis-selling, but only 59% of mortgage borrowers were given suitable advice

ATM access is to be investigated

The 'bank calls' suggesting to move the cash into the 'safe' account might steal your money

The alarm bells are ringing over 'no hang-up' fraud

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Service Administrator

    £13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

    Recruitment Genius: Dialler Administrator

    £22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

    Ashdown Group: Contracts Manager - City of London

    £35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

    Guru Careers: Tax Manager / Accountant

    £35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

    Day In a Page

    Blairites be warned, this could be the moment Labour turns into Syriza

    Andrew Grice: Inside Westminster

    Blairites be warned, this could be the moment Labour turns into Syriza
    HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

    The mystery of Britain's worst naval disaster is finally solved - 271 years later

    Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
    Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

    'I saw people so injured you couldn't tell if they were dead or alive'

    Nagasaki survivors on why Japan must not abandon its post-war pacifism
    Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

    The voter Obama tried hardest to keep onside

    Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen
    Satya Nadella: As Windows 10 is launched can he return Microsoft to its former glory?

    Satya Nadella: The man to clean up for Windows?

    While Microsoft's founders spend their billions, the once-invincible tech company's new boss is trying to save it
    A Very British Coup, part two: New novel in pipeline as Jeremy Corbyn's rise inspires sequel

    A Very British Coup, part two

    New novel in pipeline as Jeremy Corbyn's rise inspires sequel
    Philae lander data show comets could have brought 'building blocks of life' to Earth

    Philae lander data show comets could have brought 'building blocks of life' to Earth

    Icy dust layer holds organic compounds similar to those found in living organisms
    What turns someone into a conspiracy theorist? Study to look at why some are more 'receptive' to such theories

    What turns someone into a conspiracy theorist?

    Study to look at why some are more 'receptive' to such theories
    Chinese web dissenters using coded language to dodge censorship filters and vent frustration at government

    Are you a 50-center?

    Decoding the Chinese web dissenters
    The Beatles film Help, released 50 years ago, signalled the birth of the 'metrosexual' man

    Help signalled birth of 'metrosexual' man

    The Beatles' moptop haircuts and dandified fashion introduced a new style for the modern Englishman, says Martin King
    Hollywood's new diet: Has LA stolen New York's crown as the ultimate foodie trend-setter?

    Hollywood's new diet trends

    Has LA stolen New York's crown as the ultimate foodie trend-setter?
    6 best recipe files

    6 best recipe files

    Get organised like a Bake Off champion and put all your show-stopping recipes in one place
    Ashes 2015: Steven Finn goes from being unselectable to simply unplayable

    Finn goes from being unselectable to simply unplayable

    Middlesex bowler claims Ashes hat-trick of Clarke, Voges and Marsh
    Mullah Omar, creator of the Taliban, is dead... for the fourth time

    Mullah Omar, creator of the Taliban, is dead... again

    I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
    Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

    Margaret Atwood on climate change

    The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years