BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
    You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
 Thursday, 18 April, 2002, 17:38 GMT 18:38 UK
Spending pressures despite tax rises
graphic for Budget

The chancellor's Budget - which raised taxes to help fund the NHS - will result in a substantial redistribution of income.

According the respected think-tank the Institute of Fiscal Studies, the richest 10% of the population will lose nearly 20 per week when all the tax changes in the Budget come into effect.

Budget gainers and losers
Single parent: +10.61/week
Single pensioner: 3p/week
Couple with children:
-37p/week
Couple, no children: -4.58/week
source: IFS
At the other end of the income scale, those households in the poorest 10% will gain on average more than 5 per week.

In previous Budgets, the chancellor has boosted the incomes of the poor, but few groups have suffered losses.

Now, half of households will be worse off by 1 per week or more.

The main losers are households without children, while single parents gain the most.

"The chancellor has moved from distribution to redistribution," according to the IFS's Carl Emmerson.

Spending gap

The amount raised in new taxes in this Budget is substantial, amounting to 11.5bn by the end of the planning period in 2005-06.

Budget balance 2005-6
Extra taxes: 11.5bn
Extra tax credits:
-3.5bn
Extra spending:
-17bn
Budget deficit change: -9bn
source: IFS
But spending is planned to increase even faster, with total increases of 17bn by the 2005-06 financial year.

And the chancellor has also given back 3.5bn in tax credits, mainly to families with children.

That means a substantial budget gap of 9bn, which represents a big boost to the economy, much of which will have to financed by borrowing.

And looking further out, the chancellor has pledged to continue to increase health spending by 7.4% each year to 2007-08.

That sum represents about 0.7% of gross domestic product (GDP), or about 7bn, which will have to be financed - either by borrowing more, higher economic growth (leading to more tax receipts), or future increases in taxes.

If the government's luck holds, such decisions may only need to be taken after the next general election.

Struggle for cash

In a few months time other government departments will find out how much money they will receive when the chancellor publishes the results of his Comprehensive Spending Review in July.

With health spending rising to 87bn by 2005-06, they could be facing a financial squeeze.

Even after 10 years of Labour in power, public spending will still be lower as a proportion of the economy than the last year John Major was in power

If the chancellor chooses to increase education spending at the current rate - 5.4% annually - then the IFS estimates that on average spending by other departments will go up by 3.1% - just above the projected long-term growth rate of the economy (2.5%).

Some departments - including transport - will benefit from the fact that much of their spending is on capital projects, which is subject to special, more generous fiscal rules.

But the chancellor may also need to increase spending on social security to meet his target of halving child poverty - and if unemployment rises in the future, it could grow even more.

That would leave other departments such as the Home Office and Defence struggling hard to fund their new commitments.

Taxing to spend

As the IFS pointed out, this is the first Budget in 40 years to raise taxes in order to fund higher spending, not to close a budget deficit that threatened economic stability.

But even after 10 years of Labour in power, public spending will still be lower as a proportion of the economy (at 41.8%) than the last year John Major was in power.

To reach European levels of spending in other areas besides the NHS would require an even bigger change in taxation.

And that would represent an even bigger political gamble.


Key stories

Analysis

QUIZ

BUDGET DIARIES

AUDIO VIDEO

TALKING POINT
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes