The honesty that made backbenchers gasp

Budget Comment

There had been a big budget secret after all, announced at the end of his speech with the melodramatic flourish that no self-respecting Chancellor can ever resist. The announcement of more than pounds 3bn of new spending on health and education, two-thirds of it from the contingency reserve and a third from the windfall tax, thrilled Labour backbenchers. Moments earlier, some of them had gasped audibly when Gordon Brown had reaffirmed, in ultra-austere mode, that ministers would have to stick to the chafing control totals set by the previous government.

Even with the new money, spending constraints on the cherished priorities of health and education will still be dauntingly tough. But the new spending announcement helped to underline that after weeks of grandstanding on the international stage, the Government has not lost sight of its main domestic goals. It made it all the more difficult for the privatised utilities to complain credibly about the impact of the windfall tax: can BT, British Gas and the water companies really not afford to help schools in pre-First World War buildings? Even Kenneth Clarke, while attacking the concept of the windfall tax, was forced to admit yesterday that the use of pounds 1.2bn of it for school buildings was well judged. And the eager young Labour MPs elected in May fell on the announcement like thirsty desert travellers in an oasis.

The secret made something of a mockery of the largely synthetic parliamentary row over budget leaks which had delayed Brown's speech for 15 minutes. Blair and Brown had agreed last December that they would raid the contingency reserve for money to cushion the impact of the stark decision to stick to Kenneth Clarke's control totals for the first two years of the parliament. They did so after painstakingly checking with the most senior Treasury officials that the move would not undermine the Government's reputation for fiscal credibility. Neither the criticism on the left of Brown's hair- shirt announcement, nor the heat of the election campaign, nor the renewed expectations that a landslide victory had excited among some ministers, had dragged the secret out of them. Incredibly, it wasn't until Monday of this week that either of the two ministers most closely concerned, Frank Dobson, the Health Secretary, and David Blunkett, the Education Secretary, were told of the plan. The rest of the Cabinet didn't know until yesterday. Nor was it the only big surprise: the cut in corporation tax of 2 per cent, reducing the rate to a business-friendly level of 31 per cent, lower than that of Britain's major competitors, also never leaked.

As for the rest, the Budget was as striking for its consistency with previous economic statements, in opposition and in office, of both Brown and Blair. For all the huffing and puffing, for example, about abolishing tax breaks for private health care for the elderly, Brown had always made it clear that he intended to make that change to meet the costs of reducing VAT on fuel to 5 per cent. Indeed, it was a bit rich for the Tories to attack it. The tax break was invented by the Thatcherite No Turning Back group in the Eighties to open up the prospect of much wider incentives to the well-off to switch from the NHS to the private sector. And as such it had been forced through by Margaret Thatcher against the vociferous opposition within her own government not just of Kenneth Clarke and David Mellor, when they were health ministers, but also of Nigel Lawson, who regarded it as a hopelessly wasteful means of subsidising those already using the private health sector.

But those are details. The overriding impression of the Budget calculations is that Brown has, as promised, managed to be both radical and responsible. The windfall tax is on the high side of expectations, allowing him to do more - for the adult unemployed, for single mothers, and for the crumbling fabric of school buildings - than merely help the 250,000 young people who have been unemployed for six months or more. This is a big hit, albeit a popular one, against capital to pursue a social goal.

But at the same time Brown has shown that he is not prepared to use the one-club policy of interest rates to curb the kind of boom that the Tories failed to curb in the late Eighties. To do so would have risked putting the pound, through higher interest rates, up to a level that would have simply crippled British exports. Faced with the huge, pounds 25bn injection into the economy of the building society windfall payments, he decided to hike up individual taxes in a way that still leaves intact the manifesto pledges on tax rates. This provoked two entirely opposite criticisms yesterday. One, in the City, was that he had hit the corporate sector too hard and personal taxes not hard enough. Yet Treasury figures show that excluding the windfall tax, fiscal tightening will be pounds 3.4bn this year and pounds 4.1bn next year - not a small sum, particularly since around half of it is on individuals, such as the increase in stamp duty and cuts in Miras.

The other criticism, from the Tories, is that he has somehow broken the spirit of the manifesto by increasing personal taxation at all. The letter of the manifesto required him only to leave rates intact. He had always warned that this was not a pledge on the huge complex of reliefs and allowances, and the spirit also required the fiscal stability to which he has now ambitiously committed himself. Two tests await: will his tax increase avert the need for significant interest rate rises, and will the welfare- to-work programme work? If those tests are passed, then the Budget will be seen to have been not just well judged, but a triumph.

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
As rising house prices push up demand for renting, so tenants are having to dig deeper than ever

Starter home initiative is urgently needed as rents go through the roof

Rents in England and Wales rose by 1.9 per cent in July to an average of £804

Peer-to-peer lending rates put Nisas to shame

The returns from P2P providers look more attractive than ever

Questions of Cash: Log-in problems turned eDreams booking into one-way ticket to nowhere

The company failed to provide our reader's flight ticket - or a refund

Hot property: business has been booming in estate agents this month, even though it’s the height of the summer holiday season

Heat rises for mortgage deals as UK homeowners sense a rate hike coming

The housing market should go quiet in August but instead people have been acting like cheap loans won't last. Do we really have to rush, asks Simon Read
Phones have now overtaken personal computers as the most used way of accessing the internet

Who you gonna call? The Complaints Busters

Unhappy customers have been given their own Ombudsman to help fight for them.

Undergraduates are being tempted with freebies by banks

Students should give freebies a wide berth and focus instead on cheap borrowing

An interest-free loan far outweighs the value of any of the bank's incentives

The Spanish carrier changed a reader's flight from Madrid – to a time before she was due to land

Questions of Cash: 'A connecting Vueling flight was cancelled and all my travel costs were left hanging in the air'

Our reader encountered problems when flying from London to Ibiza in May to take part in a charity ride

Complacency about rising rates could prove to be costly

Interest rates stay at 0.5% for now - but don't wait to get a better deal on your savings and mortgage

The years of ultra-low rates are coming to an end

The elderly are being targeted by fraudsters with postal scams such as fake prize draws

Fraudsters are bombarding older people with dangerous pension scams: here we reveal the warning signs

Many people are being repeatedly targeted by crooked schemes

Football and credit cards aren't always a good match

A football club-branded credit card could end up being a financial own goal

It may be a great talking point when you get your football club plastic out in front of your mates, but these deals aren't the best option for all fans

Switching current accounts: Five things you need to know about getting the best deal

Banks are boosting their profits by millions of pounds through consumer confusion

A reader's baggage was damaged at Madrid-Barajas airport, and a refund is still awaited

Questions of Cash: Iberia damaged my suitcase, told me to buy a new one - and then lost the cheque in the post

The customer purchased a replacement for €89 but has not received the refund over three months later

Swim against the tide: a country in the midst of a financial crisis, like Greece, may offer investment opportunities

History tells investors to keep their nerve when headlines scream 'crisis'

Swim against the tide: a country in the midst of a financial crisis, like Greece, may offer investment opportunities

Writing a will: How to ensure that your legacy is honoured

Last week appeal judges said a mother had been wrong to leave her daughter nothing. Simon Read asks what the rest of us have to do to avoid the same fate
Comparing current accounts to find the best value is now almost impossible

High street banks 'making millions' by confusing customers out of switching current accounts

Millions lose out because they don't understand the charges and fees on bank accounts

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: Content Writer - Global Financial Services

    £25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

    Recruitment Genius: Web Developer - PHP

    £35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

    Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

    £15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: Loan Underwriter

    £18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

    Day In a Page

    The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

    The Silk Roads that trace civilisation

    Long before the West rose to power, Asian pathways were connecting peoples and places
    House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

    The honours that shame Britain

    Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
    When it comes to street harassment, we need to talk about race

    'When it comes to street harassment, we need to talk about race'

    Why are black men living the stereotypes and why are we letting them get away with it?
    International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

    International Tap Festival comes to the UK

    Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
    War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

    Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

    Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
    Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

    'A subversive brothel keeper and Communist'

    Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
    Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

    BBC heads to the Californian coast

    The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
    Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

    Victorian fraudster who shook the Bank of England

    Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
    Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

    Car hacking scandal

    Security designed to stop thieves hot-wiring almost every modern motor has been cracked
    10 best placemats

    Take your seat: 10 best placemats

    Protect your table and dine in style with a bold new accessory
    Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

    Cook not the only one to be caught in The Oval mindwarp

    Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
    Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

    Can Benitez get the best out of Bale?

    Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
    Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

    Beijing witnesses new stage in the Jess and Kat rivalry

    The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
    Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

    Jeremy Corbyn interview: A shrewd operator desperate for power

    His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
    Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

    Isis executes Palmyra antiquities chief

    Robert Fisk on the defender of the ancient city's past who was killed for protecting its future