Sleight of hand fails to hide gaping holes in public purse

It was never going to be a classic giveaway Budget, but Gordon Brown still managed find enough tax ruses to hand more than £1.4bn to voters.

It was never going to be a classic giveaway Budget, but Gordon Brown still managed find enough tax ruses to hand more than £1.4bn to voters.

The Iron Chancellor became Gordo the Great Magician, using sleight of hand, illusion and conjuring tricks to show that - in defiance of political folklore - he has actually tightened the purse strings just 50 days ahead of a likely general election.

But he did nothing to assuage or even acknowledge mounting concerns that he is merely delaying multibillion-pound tax rises on voters soon after polling day. His only concession to the state of the public finances was to resist the temptation to splash out £3.5bn on a pre-election cut of a penny on income tax.

If anything Mr Brown made a virtue out of a necessity; he has almost no money left in the bank, so he gave little away. As widely expected, he handed tax cuts to young homebuyers, working families with children and pensioners, even buying them free bus tickets. To pay for this he slipped in a change to North Sea oil that nets him £1.1bn - paid back over the next three years - and pencilled a further £650m of savings by closing tax loopholes.

But he did nothing to address the big issue that separates him from almost all independent commentators: that his optimistic medium-term forecasts on growth and tax revenues mask the need for a £10bn tax hike. The Chancellor insisted he would meet his golden rule to balance the public finances when averaged over the economic cycle. But he cut the margin of error from £8bn in December to just £6bn.

"With our deficits lower than our competitors, lower than a decade ago - and with our debt lower than our competitors and lower than a decade ago - we are meeting both our fiscal rules in this economic cycle and the next," he told MPs

But this cut little ice outside Whitehall where analysts said he had not addressed a structural black hole in the public finances. Martin Weale, director of the National Institute of Economic and Social Research, said: "The Government has been slow to recognise the way in which the fiscal position has worsened over the last year."

The Chancellor said borrowing for the tax year ending next month would be £34.4bn, almost unchanged from the £34.2bn he forecast in December's pre-Budget report. Going forward, borrowing, with PBR forecasts in brackets, falls to £32bn (£33bn) in 2005-06, £29bn the following year (£29bn), £27bn (£28bn) for 2007-08 and £24bn (£24bn) for 2008-09. Finally he issued his first forecast for the 2009-10 fiscal year, pencilling in a £22bn deficit.

More importantly, he raised his forecast for the deficit on current spending by £3.5bn to £16.1bn, but cut it by £1bn in 2006-07, the final year of the cycle. "The shortfall is now expected to fall by £10bn rather than £5bn," said Simon Rubinsohn, chief UK economist at fund managers Gerrard. "It is hard not be a little sceptical about the extent of improvement projected."

The Chancellor made the numbers add up by cutting spending growth to 5.9 per cent from 6.6 per cent and raising revenue growth to 8.5 from 7.2 per cent. Malcolm Barr, UK economist at JP Morgan Chase, said Mr Brown had ignored all his recent fiscal forecasts that had turned out worse than expected. "If we get prolonged sluggish growth then I think we would find the fiscal rules would force the Chancellor to raise taxes despite having sub-par growth," he said.

The Chancellor stuck with his forecasts for economic growth over the next three years, not even bothering to waste words dismissing the gloomy outlook from City and academic commentators.

GDP growth in the current year will be within a range of 3 to 3.5 per cent, followed by 2.5 to 3 per cent next year and 2.25 to 2.75 per cent. The new forecasts still leave the Treasury far more optimistic than independent experts at City banks or in academia. The latest survey of economists by the Treasury published on Tuesday showed average independent forecast for growth this year is 2.6 per cent followed by 2.3 per cent in 2006.

Economists said the Treasury was betting the Bank of England would not start implementing rate rises that could halt the strong economic growth Mr Brown needs for the public finances. Andrew Smith, chief economist at KPMG, said: "The Chancellor is relying on the Bank to blink first, as last year. Mr Brown needs robust economic activity to meet his financial projections, but the Monetary Policy Committee [which pulls the interest rate lever] suspects continued above-trend growth will fuel inflation."

The Chancellor challenged his critics to prove him wrong andderided the Conservatives. "The Budget forecast for 2004 of growth at or above 3 per cent was said to be a deliberate misrepresentation of Britain's economic position," he said. "Not to meet it, it was said, would destroy credibility [but] I can report that growth in 2004 is as forecast: 3.1 per cent."

Every year, Britain's record economic performance under Mr Brown appears to improve by 100 years. Last year the Chancellor hailed the unbroken run of growth as the best since the Industrial Revolution. Yesterday he went further. "Britain is today experiencing the longest period of sustained economic growth since records began in the year 1701," he said.

In a reference to Arsenal's now-broken run of 49 matches without a loss, Mr Brown said the UK had gone one better with 50 successive quarters of growth, cunningly pulling a magician's cloak over the fact that 15 of those quarters were achieved under the Tories.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
News
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'