A message for the Chancellor: stick to prudence and simplicity

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The Government's openness in allowing a debate over the shape of Wednesday's pre-Budget report is most welcome. It may seem strange that this public debate, about the right response to public anger over the price of fuel and to the higher-than-expected budget surplus, should be one between Numbers 10 and 11 Downing Street, but maybe this is just as well. After all, the approach of the official Opposition, both to the fuel protest and to broader issues of tax and spending, has been opportunistic, inconsistent and generally wrong.

The Government's openness in allowing a debate over the shape of Wednesday's pre-Budget report is most welcome. It may seem strange that this public debate, about the right response to public anger over the price of fuel and to the higher-than-expected budget surplus, should be one between Numbers 10 and 11 Downing Street, but maybe this is just as well. After all, the approach of the official Opposition, both to the fuel protest and to broader issues of tax and spending, has been opportunistic, inconsistent and generally wrong.

The broad lines of the disagreement between the Prime Minister and the Chancellor are well known. Gordon Brown seems more determined to resist the demands of the protesters, and keener to do the prudent and boring thing, namely to pay off more of the Government's debt, than Tony Blair, who is eager to put more cash back in the pockets of those residents of "Middle England" who voted Labour for the first time three and a half years ago.

There should be no conflict between these objectives. Given choices between higher public spending, lower taxes and paying off debt, the Chancellor should - and undoubtedly will - do all three.

On the spending front, it would seem from the weekend spin cycle that Mr Brown intends to raise the basic state pension substantially from next April. This is to be applauded. The Government was right to focus resources first on the poorest old people, many of whom do not even receive the state pension. Now it should begin to redeem the debt of honour the nation owes to those who have "scrimped and saved", in Mr Brown's words yesterday. However, it must be doubted whether Mr Blair will allow him to claw back some of the increase from better-off pensioners by reducing their generous tax allowances.

There will be predictable calls from some parts of the Labour Party for more spending on education and health, but these overlook the extent to which spending on these services is already rising.

As for the national debt, the unexpected and possibly one-off windfall of £3bn from higher oil prices should be squirrelled away to reduce the burden of interest payments on future generations - in contrast to the Thatcher government's frittering away of North Sea oil tax revenue on short-term income-tax cuts.

Tax cuts, meanwhile, are the most likely candidate for the rabbit that any Chancellor likes to pull out of his metaphorical hat on such occasions. Both he and the Prime Minister are to be commended for their firmness in resisting any cut in petrol and diesel duty. But which taxes will they cut instead? The small and irritating concessions for hauliers, rural taxis and small-engined cars trailed so far cannot be the sum total of pre-electoral largesse.

Whatever tax cuts the Chancellor has in mind, they should be tilted in favour of the lower-paid, thus reinforcing his policies to improve the incentives to work. Raising further the level at which National Insurance contributions start to be paid would be preferable, for example, to a cut in the basic rate of income tax.

It is to be hoped, therefore, that the overall balance of Wednesday's statement leans towards Mr Brown rather than Mr Blair. Except in one important respect, and that is the Chancellor's fondness for fiddling. The ever-increasing complexity of the tax and benefits systems is a drag on efficiency and an invitation to fraud and evasion. Whatever else you do on Wednesday, Mr Brown, no more of these patronising and gimmicky Christmas bonuses, free TV licences and silly tax-relief schemes for largely symbolic interest groups. To borrow a phrase from your Budget speech this year, keep it underspun, Mr Brown, and keep it simple.

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