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Budget2000 Wednesday, 22 March, 2000, 17:22 GMT
Brown's Budget gamble
impact of the budget graph

By BBC News Online's Steve Schifferes

Gordon Brown's fourth Budget was a return to traditional Labour values, with an emphasis on redistribution and public spending.

The Chancellor was able to use the fruits of prudence in the first two years of government to attempt to satisfy a Labour purpose - the restoration of the National Health Service.

But in doing so, he has taken risks with the economy that could rebound later, especially if there is a severe economic downturn

And he has made it clear to middle England that any spare cash will be used for redistribution, not tax cuts.

For the first time, Mr Brown really has loosened the purse strings and announced a huge increase in spending.

It's not just the real increase of more than 6% a year on health spending, which will be the largest sustained period of growth in the NHS in its history.

Mr Brown has also said that he wants to increase capital spending on things like schools, hospitals and roads by 50% during the next four years.

Together, these increases mean that the government is committed to spending 3.6% more each year in real terms.

Budget deficits coming

As a result, the huge budget surpluses he has built up soon begin to evaporate - and so does the possibility of big tax cuts.

Indeed, by 2002-03 the government is now projecting a deficit, not a surplus, and one that grows to more than 5bn by 2004-05.

tax and spend graph

Those figures are still sustainable - if everything goes according to plan.

Mr Brown has built himself a small margin of error, equal to about 0.7% of GDP, into his calculations.

But things may not go according to plan.

The demands on spending, now that Mr Brown has loosened the purse strings, could grow more strident.

And revenue from the booming economy, which was billions more than they expected, could decline if the economy goes into recession.

Then the government would be forced to raise taxes to keep its spending pledges.

Taxes up - but more redistribution

The government has now made it clear that, unlike the Conservatives, improving public services rather than tax cuts is it first priority.

But they have had to admit, at least tacitly, that the tax burden has risen overall to fund that spending.

According to the Institute for Fiscal Studies, the overall tax burden - which stood at 37.6% of GDP in 1996-97 - will rise to 39.9% by 2001-02 before declining slightly to 39.4% by 2003-04.

The government has tried to conceal the extent of the rise - equivalent to around 18bn - by converting one of its benefits (family credit) into a tax relief (working families tax credit) which has been made increasingly generous.

The Institute of Fiscal Studies also points out that this Budget has continued the tradition of redistribution to the poorest sections of the community.

The IFS calculates that the poorest 10% of households will be 2.4% better off as a result of this budget, and over all four budgets they are nearly 10% better off. Lone parents, unemployed families with children, and single pensioners are the main gainers.

The main losers are couples without children, and the top 40% of the income distribution, who gain little if anything (although only the top 10% are big losers).

This could cause political problems. It is precisely this aspirational group who switched to the Labour Party in droves in 1997.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Peter Morgan reports
"The tax experts have accused the government of a blunder"
See also:

10 Mar 00 | Budget2000
10 Mar 00 | Budget2000
21 Mar 00 | Budget2000
20 Mar 00 | Business
21 Mar 00 | Budget2000
22 Mar 00 | Budget2000
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