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EDITIONS
NEWS Wednesday, 10 March, 1999, 13:45 GMT
Lucky Gordon's Budget for the worthy
An open cash till
Where is all the cash coming from?
BBC Newsnight Economics Correspondent Evan Davies assesses exactly how generous Chancellor Gordon Brown was in his Budget.

It sounded like good news - and it was.

As usual, after what looks like a satisfying Budget, one has to search for the body. Or at least, search for where the money is coming from.

Often, it's the economy. A buoyant performance leads to better revenues. Not this time.

Evan Davies
BBC Newsnight's Economic Correspondent Evan Davies
Quite simply, since Gordon Brown's last Budget, most of the economic news has been bad.

The chancellor is forecasting the economy will grow a little over 1% this year, 2.5% next.

That's hardly boom time Britain, although it is still a tad more optimistic than the consensus.

Another prime suspect for a good news Budget - better-than-expected tax revenues.

Is money pouring into the coffers at the Inland Revenue and other departments faster than anyone had predicted?

Has the government been lucky in having more income tax or VAT rolling in?

Nope. No bodies lying there. In fact, revenue forecasts have somewhat slipped since the last government pronouncement.

By the end of this parliament, tax revenue will be about a billion a year lower than expected. No disaster, but no big windfall either.

So - that leaves one important candidate - public spending.

For some reason or other, spending is running lower than the chancellor expected.

Stashing cash

Quite simply the chancellor has had two very important pieces of luck.

Lower interest rates have meant lower bills to service the national debt.

That's saving him over a billion a year compared to expectations.

And his other luck, is lower-than-expected social security expenditure has given him a few spare bob as well.

And there's one other thing. He'd stashed a bit of money away - a kind of emergency margin.

He calls it the Annually Managed Expenditure Margin. He's now happy to leave a bit less of a margin, three billion less in fact.

And that gives him room to spend a bit more. Between them, in 2001, these are paying for what was a far more generous Budget than most of us expected.

With a bit of money in hand, the Budget consists of several big tax giveaways and some big tax rises to pay for them.

But overall, it IS a giveaway Budget - 3.5bn for the last year of the parliament - which is about 3 a week for each household in the country.

Change in direction

The Budget can be either be seen as part of a coherent Gordon Brown mission - a Jesus Christ-like attempt to redistribute to the needy. Or, it can simply be viewed as a random bunch of populist measures.

Certainly, Mr Brown played hard as a champion of enterprise and risk-takers.

But there are areas where the chancellor seems to be pointing in opposite directions.

He has announced a new tax on industrial energy use - yet made cutting VAT on fuel a totem of his first budget.

Which is it - in favour of energy taxes, or not?

But the big question is the chancellor's coherence in personal tax and benefits.

On the one hand, he HAS put a lot of money forward to his new working families tax credit.

And he has directed resources to families with kids. In those regards, it was a truly radical budget.

But on the other hand, he cut the basic rate - a Tory style tax cut.

Helping the workers

Looking at the three Brown budgets, here's the overall effect, hot off the presses from the Institute for Fiscal Studies.

Interestingly, Gordon Brown IS new Labour.

The poorest tenth of households are better off - by 2.5%. The second poorest group - one notch up, and usually in work - are 4.5% better off.

At the top end, the richest tenth of households are worse off - a little - but they are no more badly affected than the people a notch or two below.

Tobacco tax tends to be quite regressive, normally, the taxes go up once a year, in winter.

This year, the chancellor quietly introduced two rises. It raises him half a billion pounds a year from now on.

It hits the poor. Indeed, the poorest tenth of households spend 5% of their income on tobacco tax alone.

It is hardly Robin Hood who taxes it yet higher. It looks more like a convenient source of hidden revenue.

If there is a theme to the budget - through the huge number of measures, all in all, there seems to be a genuine attempt to focus resources on the worthy - non-smoking, working households - particularly at the lower end of the distribution - and at the very top among the entrepreneurs.

After three budgets, the strategy is becoming clear.

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


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