Brown warned on pre-election tax 'sweeteners'

Philip Thornton
Thursday 24 February 2005 01:00 GMT

Gordon Brown will unveil his pre-election Budget in three weeks amid warnings that a huge package of tax cuts would threaten economic stability.

Gordon Brown will unveil his pre-election Budget in three weeks amid warnings that a huge package of tax cuts would threaten economic stability.

The Chancellor will deliver his ninth Budget to the House of Commons on 16 March, he said yesterday, seven weeks before the odds-on favourite election date of 5 May.

Every general election year since 1979 voters have been offered a package of sweeteners in the final Budget of the Parliament, according to accountants Ernst & Young. "In many cases taxes were increased soon after the general election result," Aidan O'Carroll, its national head of tax, said.

He added: "While no Chancellor can be expected to increase taxes immediately before an election, even Gordon Brown's own figures show he has little or no margin for tax cuts. Changes made for political reasons tend to add complexity to the tax system and taxpayers need certainty and stability."

Mr Brown said at the time of his December pre-Budget report that he would meet his golden rule - to borrow only to fund capital spending - by a margin of £8bn.

Since then the Treasury has been able to announce a record surplus in January, thanks to a rebound in corporation and income tax revenues. The public finances will also expect to benefit from a technical change that will see "substantial" amounts of road maintenance expenditure moved from current into capital spending, giving more leeway on the golden rule.

But independent experts, such as the Institute for Fiscal Studies, have identified an £11bn black hole - equivalent to 4p on the basic rate of income tax - that would require tax rises or spending cuts. Oliver Letwin, the shadow Chancellor, said: "We can be sure of two things - the Budget will contain measures to attract votes, and it will not contain the £8bn of tax rises which independent experts say are inevitable if Labour wins the election."

Last night John Major, the former Tory prime minister, said taxation had risen 11 times faster under Labour than the previous Conservative government. "Gordon Brown has out-taxed his predecessors - and every commentator predicts more to come if Labour wins the next election," he told the Bow Group of right-leaning Tory MPs. "Many are comforted by the Chancellor's much-heralded golden rule but they shouldn't be. It is very flexible - it is what the Chancellor says it is and the Chancellor keeps changing his mind."

The CBI, the UK's largest employers' group, said it believed there was a structural deficit of £7bn. Ian McCafferty, its chief economist, said: "I can't see how they can start the next economic cycle with large deficits and an economy running close to full capacity without some adjustment to the fiscal stance."

Mr McCafferty urged the Chancellor to trim spending rather than raise taxes - especially if the burden were to fall on businesses' cost base in the wake of the rises in national insurance, the climate change levy and changes to stamp duty. "It can't be difficult to adjust spending to cut £7bn out of a £500bn Budget," he said. "What worries me is the danger of taxes falling on business costs."

The Chancellor has consistently said he will meet the golden rule in this and the next cycle, and that all the Government's spending plans are fully funded.

Moore Stephens, an accountancy firm, said the Chancellor would probably find more savings from "waste" within Whitehall to pay for cuts to stamp duty and inheritance tax. "Budget 2005 is set to be a pre-election sweetener," Steve Durman, a partner at the firm, said.

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