Outlook: Finance fiddle

Click to follow
The Independent Online
DAVID RUFFLEY, a Conservative MP on the Treasury Committee, yesterday accused Gordon Brown of fiddling the figures to hide the fact that he raised rather than reduced taxes in the recent Budget. He pointed out, in the manner of one outraged, that the Red Book could present a falling tax burden only by virtue of classing the new working families tax credit as negative income tax rather than positive public expenditure. Quite right, Mr Ruffley. Power to your elbow.

But hold on a moment. Could this be the same Mr Ruffley who was once at the Treasury as a special adviser to the last Chancellor, Kenneth Clarke? Yes indeed, it does tend to take one to know one. It was after all the Conservatives who decided to class privatisation revenues as negative spending in order to keep down the published share of government spending in GDP.

All governments engage in sleight of hand when presenting the public finances. Any experienced scrutineer of the Budget documents knows that a few key tables, mostly in the appendix to the Red Book, tell you all you need to know - although even for the expert, changes in presentation and definitions make it a challenge.

Two weeks on from Budget Day, the political row now raging on whether Mr Brown misled everyone on the extent of the giveaway is shedding little new light on what he actually did.

The shape of the wood is clear behind the mass of trees. First, there is no doubt that a series of tough measures dating back to Kenneth Clarke's November 1996 Budget have raised taxes enough to get public sector borrowing back under control. Mr Brown has retained the excise duty "escalators" his predecessor introduced, along with the plan to abolish tax relief on profit-related pay, and added his own increases such as abolishing the dividend tax credit.

At the same time, the direct tax burden has gone down and new tax credits like the WFTC will put more money directly into the paypackets of many low earners. This year's Budget continued that process. It was broadly neutral but because there was also a small giveaway in lower personal taxes and higher government spending, it ought to add significantly to consumer purchasing power.

Is the overall tax burden rising? It is higher than it was before the election, but then public borrowing had to be reduced. As for the future, that depends on whether the economy grows as strongly as Mr Brown hopes. If it does, then the overall tax burden should begin to fall.