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EDITIONS
Budget2000 Wednesday, 22 March, 2000, 13:26 GMT
Understanding the Budget
From Left: John Whiting, Lord Desai, Roger Bootle
What did the experts think of it? Here's the detailed analysis and comment from BBC News Online's Budget panel:

  • Roger Bootle - economic adviser to Deloitte & Touche and managing director of Capital Economics.

  • Lord Desai - professor of economics at the London School of Economics and Labour peer.

  • John Whiting - tax partner at Pricewaterhouse Coopers.

    Roger Bootle

    This is a Budget where Gordon Brown, the Iron Chancellor, has also had to be Gordon Brown the canny political operator.

    The pressures of the next election, and the short-term political difficulties that the government is in with its core supporters, are written all over its structure.

    His reputation for prudence demands that he be careful with the taxpayer's money and the Treasury's surpluses. This is also what the state of the economy demands, given that GDP is set to grow strongly this year and interest rates are already under upward pressure.

    The chancellor has tried to square this circle by being pretty tight over the next two years but then allowing substantial increases in spending in later years.

    In fact, the public finances have improved so much that he is able to grant the Prime Minister's wish for further spending next year and still announce a healthy surplus.

    But he plans to make large increases in public spending in later years.

    Are these increases prudent? Are they compatible with continued health of the public finances?

    On the Government's figures, the level of borrowing and debt are within the self-imposed limits of the Government's fiscal rules.

    Moreover, it has to be said that the assumptions on which the figures are based continue to be prudently cautious.

    Consequently, there is every chance that despite these large spending increases (the details of which are due to be elaborated in the Comprehensive Spending Review, due by July), the budget surplus will again turn out to be stronger than these projections suggest.

    Nevertheless, there must be a strong presumption that the chancellor is taking a risk with these increases.

    If the economy should suffer a downturn, then spending increases such as these could contribute to large budget deficits and Mr Brown's reputation for prudence could be in tatters.

    Moreover, as political factors now show themselves as more powerful after three years of enforced prudence, it is doubtful if the chancellor would be able to rescind any of these increases if the public finances turned out to be not so healthy.

    Lord Desai

    In the cold light of the day after, what has Gordon Brown's Budget accomplished?

    The first reactions have been very good.

    The headlines are that Brown is no longer Ir'n Broon but the Big Spender.

    Go back to last year's Budget and the headlines were much the same and still the wheels almost came off the NHS during the winter.

    The extra 2bn for the NHS may look a lot but the bulk of that will be absorbed by the pay rise already awarded.

    A similar story can be told about education.

    I hate to be churlish, but the spending increase is much smaller than it looked on Budget day and could melt away by next January.

    As it is the City smells a rat despite Brown's prudence and the core supporters/ middle England may find in six months that they have less than what they thought they were given.

    The praise Brown deserves is in having cracked the problem of redistribution in an imaginative way.

    The usual way to look at redistribution is by income deciles from the poor to the rich.

    Brown has taken attention away from income alone and added some measure of needs. Thus he has directed income away from the childless couples to those with children and rewarded such couples extra if they are working.

    He has added to that another dimension in the latest Budget. This is to give money to the elderly. So if you want to get your hand on Brown's largess get children or get a job or preferably both. If you can't do either better be retired.

    The electoral pay off of this strategy is yet to be calculated.

    The chancellor, a political animal despite all his talk about prudence, has taken a double gamble - modest rise in spending enough to avoid a crisis winter and some redistribution across the society from one section to another.

    Both of these are required to guarantee that Labour secures the next election. He could be right but you never can tell.

    Because while death and taxes may be certain, election victories are never in the bag.

    John Whiting

    Gordon Brown's budget didn't add much to the raft of tax changes which we already knew were coming.

    There are plenty of changes, but they mostly were announced in previous budgets.

    We heard - inevitably - that the 1% cut in basic rate income tax was coming in as scheduled, that the Children's Tax Credit (CTC) was on its way, and that the new all-employee share scheme was on schedule.

    But a number of expected tax hares didn't run - only a derisory increase (from 1500 to 1520) in the amount of income subject to the 10% rate of income tax, no hint of serious rises in the starting level for the 40% band, no suggestion of closing the gap between the married couple's allowance going and the CTC arriving, and not a sniff of further cuts in basic rate income tax.

    Overall, a lot of people with earnings of around 30,000 will find themselves worse off from this April. Those with lower earnings and children will mostly benefit.

    There was a great deal of attention - rightly - on the Capital Gains Tax reforms, where it seems the message has finally got through that our CGT rates are too high for business investment and that the tapering system wasn't yet right.

    Particularly good is the prospect of much wider availability of the 10% CGT rate, for all employee shareholdings and all unquoted shareholdings.

    Slipped in was a measure to encourage saving - the continuation of the 7000 ISA limit into a second year, as I had forecast.

    The elderly have some things to look forward to - higher winter fuel allowances and, at last, some tackling of the far-too low limit of where savings start to bite into income support and other benefits.

    Charities will welcome the confirmation of the reforms outlined in November, which come as compensation for their loss of dividend tax credits.

    As for tax rises, the usual sin taxes escaped relatively lightly. Real sinners seem to be those who smoke whilst moving house!

    But there are tinkerings with the corporate tax regime, in particular to the way companies get relief for tax paid abroad on overseas profits.

    That may well cost some UK-based multinationals quite of bit of money. It may even be the biggest hidden tax increase of this Budget, just as in 1997 the Chancellor raised over 4bn a year by stopping repaying dividend tax credits to pension funds.

  • Links to more Budget2000 stories are at the foot of the page.


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