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Wednesday, 22 November, 2000, 20:02 GMT
Brown defends Budget plans

UK Chancellor Gordon Brown has mounted a vigorous defence of the spending plans he announced in the pre-Budget report earlier this month.


Policy makers will have to stand ready to move flexibly in either direction, depending on how the risks develop

IMF
And he denied that he was still being too cautious in his projections of a 10bn budget surplus in the year to April.

Speaking to the House of Commons Treasury Select Committee, the chancellor said his plans were not inflationary, and cited the favourable comments in the minutes of the Bank of England's Monetary Policy Committee report.

He said the fiscal burden would be "as tight or tighter" in future years after the pre-Budget report than had been planned last March.

He confirmed that as a result of unexpected additional revenues, the budget surplus would be larger than expected.

'Uncertainty'

However, the International Monetary Fund has said that further Budget giveaways could lead to higher interest rates.

The IMF said that, while the performance of the economy overall had been "impressive", the "high degree of uncertainty" meant the Bank of England would need "great skill" in setting rates.

"In this environment characterised by major uncertainties and a sizeable increase in public spending, monetary policy will have to strive to avoid undue delays in taking action," it said.

"In coming months ... policy makers will have to stand ready to move flexibly in either direction, depending on how the risks develop."

No spree

Giving a generally favourable assessment of the UK economy, the IMF said interest rates might have to be raised if private spending remained strong, or wages picked up, at a time when government spending is expanding.

Mr Brown said there would be no spending spree, and the government would meet its fiscal rules of balancing the budget over the economic cycle, and reducing the overall debt burden.

"My aim is a balanced approach in all we do so we can keep inflation and interest rates as low as possible," he said.

Tax burden

Much of the testimony to the select committee was taken up with an increasingly acrimonious debate about whether the tax burden had increased under Labour.

Mr Brown denied that it had - at least as compared to the plans of the Conservatives.

The current tax take of 37.3% (the percentage of total GDP that goes to the government) was less that 37.6% projected by the Conservatives when they left office.

"We have managed to tackle the deficit... increase public spending and investment... and at the same time kept the tax take below that projected by the previous government," he told MPs.

He was also attacked by the Conservatives for increasing the number of top-rate taxpayers, which has gone up by one-third in the last three years.

But Mr Brown said that he was following the same policy as the last government, which was to raise the threshold for higher rate taxpayers in line with inflation - although he admitted that "fiscal drag" in a time of high earnings growth was inevitable.

Working Families Tax Credit

There was also a fierce debate about how to count the Working Familes Tax Credit, which the government does not want to treat as public spending.

Conservative MP David Ruffley said that official bodies like the Organisation for Economic Cooperation and Development believed this classification, which considerably reduces the total amount of public spending, was misleading.

The Conservatives also attacked Mr Brown for raising National Insurance contributions from April.

But the chancellor replied that the government had reduced the basic rate of income tax, added a tax credit for children, and increased the working familes tax credit for low income earners.

And he said that the direct tax burden on a family with two children would fall from 20.3% of income in 1997-98 to 18.6% in 2001/02, the lowest for a generation.

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See also:

22 Nov 00 | Business
Can the government boost investment?
20 Nov 00 | Business
Record UK budget surplus
08 Nov 00 | UK Politics
Brown acts on fuel and pensions
09 Nov 00 | Pre budget report
What is the pre-Budget report
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