Leading Article: Budget 1999 - Politically brilliant, fiscally progressive, but based on a risky assumption
Wednesday 10 March 1999
It was not perfect, of course. The 10p starting rate of income tax was a gimmick when Mr Brown first proposed it, and it remains a gimmick now. Equally, the cut in the basic rate from 23p to 22p trailed for next year owed most to the need to deliver a killer political punch to a Tory party suckled on the milk of basic-rate tax cuts. But in making the point that the burden of taxation is felt not only by the rich but also by the hard- working poor, the conversion of the Labour Party to the tax-cutting gospel is long overdue.
And in its combination of the goals of fairness and encouraging enterprise, the Budget was a triumph. The measures for rebalancing family taxation deserve at least four long, loud cheers. Undeterred by the sentimentalists who object to the arrival of the 20th century, let alone the 21st, the Chancellor boldly abolished the married couples' allowance and tied the advantages of the tax system entirely to children, with no regard to the status of the family in which they are brought up. This liberalism is to be applauded: it should treat parents equally, not only whether single, double, divorced, separated or widowed, but also whether they are gay or straight.
The additional help for pensioners is a welcome recognition that not everybody in Labour's new Young Country is able to assume the duty of moving from welfare to work. Again, the Chancellor was clever to combine a universal increase, from pounds 20 to pounds 100 in the winter payment, with a means- tested one, raising the "guaranteed minimum pension" next year by the rise in earnings - a partial restoration of the link broken by Mrs Thatcher in 1981.
Finally, the Budget should be applauded as a marker of the extent to which the Government now recognises that risk-taking is an important engine of job creation. This follows the Prime Minister's speech last week, in which he extolled the virtues of the US economic model over the continental European one. The toughening up of the new competition regime deserves another burst of applause - let us hope this presages a real attack on the abuses of market power on the American trust-busting model.
Unfortunately, there was too much in Mr Brown's speech of the tired old assumption that "encouraging entrepreneurs" means giving them tax breaks and "government support". The Chancellor sounded suspiciously like Tolstoy's character who sits on a man's back saying: "I am very sorry for him and wish to ease his lot by all possible means - except by getting off his back." The best way to encourage entrepreneurs is to get government off their backs altogether. What small employers desperately need is to minimise contact with government and, when contact is unavoidable, to simplify the requirements on them. There was some recognition of this in Mr Brown's idea that a "one-stop open-door service" for small businesses would offer an automated payroll service, but they are unlikely to be holding their breath for this salvation.
A simpler tax system, operated by an Inland Revenue with the same sense of innovation and enterprise as Mr Brown was enjoining on the rest of us, would be the biggest help. Instead, the Chancellor headed off in the other direction, announcing pounds 10m here and pounds 50m there on schemes and tax breaks and bureaucratic form-filling "initiatives", dressed up in New Labour, third way rhetoric.
One of Nigel Lawson's achievements was as a tax reformer who made the tax system simpler and more logical. Mr Brown has simplified the big picture: an independent Bank of England, a "golden rule" and a rule for sustainable national debt, and a three-year planning horizon for government spending which has abolished the annual spending round. But he is in danger of cluttering up the canvas with a lot of self-defeating fine brushwork. The tax concession on so-called "high risk" share options is the kind of crazy loophole which Mr Brown's socialist double denounced with such justified fury in opposition.
The other strategic objective in the Budget was Mr Brown's green plan to shift the burden of tax from small cars to big ones, from employment to pollution. We hope this will meet the target of cutting greenhouse gas emissions from burning fossil fuels by 2010. But there is no reason why he should not move further and faster.
Overall, though, it was a politically brilliant and fiscally progressive budget. The main danger is that it is founded on the optimistic assumption that the British economy is about to effect its first-ever soft-landing- followed-by-immediate-take-off. After a pause in growth this coming year, the 2.5 per cent growth that is forecast for 2000-01, followed by 3 per cent in 2001-2002 (election year), leaves plenty of scope for a belly- flop on the downside.
Look what happened after Nigel Lawson, at the height of his confidence and power, proclaimed an "economic miracle" in 1988. It will be some time before history can judge his successor.
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