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Gordon Brown yesterday launched Labour’s election manifesto for 2008 or 2009. His 50-minute statement may have been called Budget 2007 but the key tax measures do not come into effect until April next year, opening the way for a general election later that spring or summer if the polls are favourable for Labour.
Far more important than the familiar combination of boasts about his growth and inflation records and of complicated tax changes was the underlying political, and electoral, theme of dishing David Cameron. Of course, chancellors always enjoy a tactical advantage on Budget day in capturing the initial headlines, but often, like yesterday, second impressions are likely to be more qualified.
The main proposals — notably the two-point reductions in the basic rate of income tax and in corporation tax — were aimed at outmanoeuvring the Conservatives. There were the now trademark Brown references to “representations” he had received (that is Tory proposals) on putting VAT on airline tickets; for a return of the married couples allowance and for transferable tax allowances between husbands and wives with children under five; and a third fiscal rule (sharing the proceeds of growth between public spending and tax cuts). He then demolished each in turn to loud Labour cheers, before the final coup de théâtre of the income tax announcement.
But closer examination reveals a less generous Chancellor and more of “a give with one hand and take back with another” Budget. Despite talk of cuts, the tax burden will rise over the next year before arriving at a plateau.
Admittedly, the economic outlook remains benign, with economic growth expected at close to 3 per cent for the next couple of years, with a better balance between consumption and investment than in the past. Inflation is also projected to decline to within the target range after the recent blip upwards. But the fiscal outlook looks pretty tight, with public borrowing forecasts revised upwards by about £4 billion a year because of a shortfall in North Sea oil tax receipts.
Consequently, there is little room for manoeuvre. Cuts in rates of company taxation will be financed by a change in the structure of capital allowances. Similarly, the abolition of the 10p starting rate of income tax pays for the 2p cut in the basic rate. Other offsets include an increase in the age allowance, and in child and working families tax credits, balanced by increases in the upper earnings limit for national insurance contributions. Overall, a cut in some personal taxes of £13.2 billion in 2009-10 will be financed by £10.7 billion rises in other personal taxes, for a net reduction of nearly £2.5 billion. That, in turn, is financed by a big increase in business rates on empty property and increases in fuel duties and other green taxes.
The bottom line of Uncle Gordon’s magician act is that households will be on average £100 a year better off. Four in five households will be better or no worse off. The main gainers will be low-income families with children and pensioners, and the losers will be single people who do not qualify for tax credits in the £6,000 to £17,000-a-year range, and some people in the £33,000 to £38,000 range hit by higher national insurance. In political terms, there will be a balance between the welcome for the 2p cut headlines and then the realisation of the tax increases elsewhere.
The most important guide to Brown’s Britain lies in the announcements on public spending. Forget the large increases in cash budgets that Mr Brown highlighted. The real story is that from April 2008 public spending will grow by an average of 2 per cent a year in real terms until 2011. This is not only less than the expected growth of the economy but compares with annual increases of more than 5 per cent earlier in the decade.
This means that life is going to pretty tough for many departments, with a further big squeeze on administrative costs. The Home Office Budget has been frozen and, after 5 per cent real-terms cuts in central departments such as the Cabinet Office and the Treasury, as well as Work and Pensions, the Attorney-General’s department now faces a 3.5 per cent a year cut in real terms each year. So any relief in the the Education Department will be tempered by the realisation that a 2.5 per cent a year annual real increase from 2008 is half its recent rate of expansion.
Mr Brown has, however, deferred until the autumn decisions on future spending on health, defence, international development and local government. The delay from the usual July is for political reasons because of the handover in 10 Downing Street and subsequent reshuffle. But, with health likely to be favoured, there will be tough bargaining over the defence budget, which is likely to be settled after the departure of Tony Blair, who has always been sympathetic to the Armed Forces.
Mr Brown has posed a problem for the Tories. Mr Cameron shrewdly accepted Mr Brown’s spending plans in the hope of closing down taunts about Tory cuts. But on tax Mr Brown has stolen Tory clothes. It is all very well for Conservative leaders to complain about a “tax con not a tax cut”, but their options have been narrowed. That will intensify the Tory debate about a shift from direct to green taxes.
For all the doubts of senior civil servants about whether he can run a cohesive government, Mr Brown yesterday underlined his formidable political talents. Closer scrutiny may reveal the flaws and drawbacks in his proposals. But he can still set the agenda. Mr Cameron and the Tories underrate Mr Brown’s determination and skill at their peril.
Follow the reaction to the Budget via the Message Meter timesonline.co.uk/commentcentral

Peter Riddell has been a leading political commentator and an Assistant Editor for The Times since 1991. He writes mainly, but not exclusively, about British politics and has published several books on British politics, including not one, but two, on Margaret Thatcher
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Dear Peter,
You and Steve Richards at the Indy seem to be the last two people in England to realise that the voters don't buy it any more. Even arch Blair-babe Sieghart has sensed which way the wind is blowing. Could it be that you both won't be invited on the Beeb's radio shows if you're not pro labour enough?
MikeG, Bridport, England
2 quid a week better off! Don't rush out and spend it all at once.
Christopher Holland, Canberra, Australia
Large company corporation tax goes down from 30 to 28% (ie a fall of 6.6% in tax payable) while the small company rate goes up from 19 to 22 % (a rise of 15.8%). So Labour's promise to help small businesses is revealed for the brown-faced lie that it is.
broglet, London,
No-one seems to be mentioning the lack of increase in personal allowances. If he is not increasing them this year or next surely we are all paying that way for the supposed "£100 better off"
Ian, Lincoln, Lincs
The bottom line of uncle Gordon's budget is that he has taken money off the less well off and they can only get it back if they ask him for some tax credit on the right piece of paper. The playground bully is taking your dinner money off you and letting you have 80% of it back if you grovel and ask him nicely.
This budget isn't about tax, it's about a control freak who wants to decide your standard of living for you. The nickname Stalin comes to mind very readily. This budget has borne out the accustaion of the previous day very nicely.
REMEMBER IT AT THE NEXT ELECTION!!
KR, Stockport,
Gordon Brown has over the last ten years raised the tax levels to hisorically high levels. Families are now on average paying some £1,300 a year more to pay for Mr browns profligate and uncontrolled spending.
On pensions his record is even worse. At a stroke he destroyed a pension system that was the envy of the world.
This was a budget for Gordon Brown's political ambitions, not a budget for the country.
J Moore, London, England
More spin in the message Riddell - "four in five householdes wil be better or no worse off " should read "one in five will be better off, three in five wil be no worse off and one in five wil be worse off" - same arithmetic but different message isn't it. Lets be precise please
Red Bannion, Coventry, West Midlands
Dear Peter - why do you so overlook the 3% rise in corporation tax on small businesses? That makes the owners much worse off. My household is likely to be £2,000 p.a. worse off. This certainly isn't a neutral budget for my family. I just don't understand why it was necessary to whack small businesses when we work so hard and have no-one to fall back on but ourselves.
Bob, Thames Ditton, UK
Hooray,I will be about 100 pounds a year better off.My life will change.I am so happy.I can buy 3 new shirts each year. Thank you Gordon.
Seriously ,to eliminate the 10 %percent tax band is a disgrace and will directly hurt the lower paid.
It should have been increased.
Mr Brown,it's a poor show.
Nic Singlehurst, royan, France
Gordon Brown may have been "clever" but the New Labour spin cycle is still running! The 2p basic rate cut is more-or-less offset by the removal of the 10p band (an anachronism in these days of tax credits) and the alignment of the higher rate income tax & NI bands. Surely it would have been more honest to present the budget as a rationalisation (which it is) than a tax cut (which, basically, it isn't). Ah, "honest politician" - there's an oxymoron.
Having made the alignments, will his successor (Tory or Labour) finally have the balls to merge tax & NI, to save the taxpayer and businesses the expense of running two separate taxes that basically do the same thing?
Mark, Oxon., UK
the budget is like gordons personally insignificant and boring and of no benefit to anybody, even blair would be better to carry on and replace gordon, and put him charge of scottish affairs with all his other scottish cronies,yours delusioned by back door scottish tactics, from an english crusader
anthony williams, stafford, england
This was another superficial and flashy Budget from Gordon Brown, with no attempt to solve the deep-seated problems of public finance (spend now, borrow later) or the damaging absurdities of the tax system.
Frank Upton, Solihull,
Am I the only one who has looked at the change to NIC which is taken at 11% not exactly indirect tax is it!!!!
Mark, London, England
Peter Riddell will be better off, that's magic. I'm not quite sure that those on less than £19,000 will agree.
David Leslie, Perth, Scotland
Households better off by £100 per year. About £2 per week then. I can hardly contain my excitement.
A Brady, Hampshire, GB
The savings to the average family depend on which newspaper you read.The journalists who compose their daily view on all that matters are about as reliable as the politicians who rule us,people who believe either are very silly folk indeed.
mike, Alford, u.k.
I haven't yet read why the 10% rate was abolished to pay for the cut in basic rate. If the overall impact is neutral, what was the point? Other than prompting infantile '2p/ To be' headlines in the papers?
Paul, Borehamwood, Herts, England
The Conservative's fox has been shot.
Robert, London,
Almost 3.5 million families will be worse off as a result of this Budget. Hundreds of thousands of people on low incomes will end up worse off unless they claim tax credits. And at the moment, four out of ten eligible families fail to claim. But criminal gangs have no compunction about making fraudulent tax credit claims. In one year alone, they helped themselves to one billion pounds of taxpayers' money. Why has Gordon Brown allowed them another opportunity to enrich themselves at our expense?
Ray Burke, Stockport, England
Grow up Riddell. Most people outside Westminster can recognise a three card trick when they see one. It is not "magic", it is boring and tiresome like its pretentious exponent.
You must be pretty desperate to maintain access to "Uncle Gordon".
R Topham, Northallerton,
There's another dimension to this budget that has thus far failed to attract much notice. In shifting taxes more towards indirect rather than direct sources, it promotes a more regressive funding scheme which "disproportionately" falls on the less well off.
An angle for the Tories to work, perhaps?
Pat O'Donnell, Ascot,
Peter Riddell has clearly not understood that all the poorest and lowest paid and those on fixed incomes in Britain will, with the loss of the 10% income tax bracket, be subsidizing tax cuts for the middle and higher income earners. To have been of any benefit to all those with an income of less than £18,000 per annum the personal allowance should have been raised considerably and the 10% income tax band extended. This budget is a disgrace.
Kenneth Armitage, Suffolk, England
Well you guys voted them in......
mark mcfarland, dubai, uae
Looks like extra mileage has been worked from the 2p income tax cut. by announcing it one year and two weeks before it takes effect.
Maybe the focus groups should look at the possibilities from extending the time shift in such announcements even further. Why not a much larger cut, but to take effect in two or three years?
That way, if any interim adjustments are needed to make up shortfall, theres plenty of extra time to modify, postpone or even cancel the cut, having worked the feelgood from the initial announcement for all its worth.
dr venables preller, Warminster, UK
Thank goodness I no longer live in England.
My sympathy goes out to the English trapped there and unable to seek aylum in free democratic countries.
How will this conjurerer's budget affect the rest of the U K?
Will everyone be conned on an equal basis?
antony, Limassol, Cyprus
Brown giveth and Brown take away more.
The man wants locking up for the damage he has done to the moral of this country.
D Crossingham, Birmingham, England