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EDITIONS
 Thursday, 18 April, 2002, 10:03 GMT 11:03 UK
Six Forum: Ask the BBC's Jenny Scott about the Budget

  Click here to watch the forum.  


In a live forum for the BBC's Six O'clock news Manisha Tank put your post-Budget questions to the BBC's Economics Correspondent Jenny Scott.

UK Chancellor Gordon Brown has set out plans to raise taxes to boost spending on the National Health Service.

National Insurance payments will rise by 1% on all earnings above 4,615, the chancellor told a packed House of Commons.

Duties on beer, spirits and wine will be frozen, while a pack of 20 cigarettes will increase by six pence. Fuel duties are also frozen.

Mr Brown said the extra money for the NHS would come hand-in-hand with more scrutiny of how it was spent.

What are the implications of this year's Budget for you?


Transcript


Manisha Tank:

Jenny thanks for being with us. An absolutely huge response to this Budget. But looking at it overall, in terms of any shocks or surprises, if there was anything that was going to do that, what was it?


Jenny Scott:

I think it was National Insurance. Now we all thought he would do something to National Insurance because it was the obvious lucrative way of raising some money. But he shocked us in that we are going to see an increase of 1% in National Insurance on everybody's incomes, not just the incomes on which we currently pay National Insurance. So I think that was a bit of a shock. There was also a shock that he also increased the National Insurance rate for employers and not just employees. We all thought that he would do one or the other but he has done a double-whammy and he has done both. So I think that was the main shock.


Manisha Tank:

Obviously there have been questions on that very issue. Richard Murphy, UK: Remember that the rise in National Insurance will hit owner-managers twice as hard as others, as they are responsible for paying their own employers and employees National Insurance.


Jenny Scott:

This is a hot issue and in that sense smaller companies probably do probably lose out. But what is a typical trick of a Chancellor - what Gordon Brown has taken away with one hand he has tried to give back with the other and there are a number of measures that he's introduced for small companies. For example, he has cut the starting rate of income tax for small companies from 10% to 0%. He's cut the Corporation Tax by another 1% down to 19% - that was 23% when Labour first came to power. He says that's now the most favourable in G7 - in the western world. He's done a few things that will simplify red tape for small businesses which is one of their big bugbears. So in some ways he has tried to help them out.


Manisha Tank:

Obviously he is raising this new tax revenue for a reason. Nick Fletcher, UK: How will the extra money for the NHS implemented? What areas will it be targeted at so to bring maximum improvements to the service? Can the Chancellor assure us that this money won't be wasted but go to the right areas?


Jenny Scott:

As ever, this is the problem. Surveys certainly show that people don't mind paying extra tax for the NHS as long as the money is going to be used properly. Now he has tried to address that. He says that there's going to be a new and strict audit system for the amount of money that's spent on the NHS and there's also going to be an annual report to Parliament to discuss how the money for the NHS has been spent and there is also going to be a rigorous investigation of patient complaints. Alan Milburn, the Health Secretary, will announce more details on that tomorrow. But he is trying at least to address the question of how well that money is spent but of course he has tried to do that before and it just hasn't worked so why should this be any different?


Manisha Tank:

There are some people who are concerned about the fact that a couple of years ago we were talking about the fact that we had a huge Budget surplus. Michael Lappin, England: Surely the focus on extra tax receipts needed for the NHS is a red herring. What has happened to the record tax revenues Gordon's been raking in, since Labour came in? He is merely raising taxes now so that he doesn't need to before the next General Election.


Jenny Scott:

The questioner has a good point. In every Budget that Gordon Brown has had - this is his sixth one since Labour came to power - he has been able to say - look we've done better than I thought and I've found a little bit of money in my back pocket so I'm going to be able to spend a little bit more than I thought. He has, some would say deliberately, underestimated the amount of tax revenues he could get in - so it is a fair criticism. But to put that in context, over the last four or five years since Labour has been in power, the economy has been growing very well so tax revenues have been coming in maybe more than he thought and unemployment has been falling. So the amount of money he has had to spend on things like social security, jobseeker's allowance - that has been less than he might have thought.

So because of this strong economy the Chancellor would say that that is why he has always had more tax revenues and more money at the end of the financial year than he expected. Now he can't rely on that so much going forward - the economy isn't in such a good state as it was so he can't rely so much on this little stash of money. But having said that, he is probably the most prudent man in Britain so no doubt somewhere worked into those calculations he has restored his margin for error so there is still the possibility yes that this time next year when we have another Budget he'll be able to say - hey presto I've got more money than I thought.


Manisha Tank:

Stephen Ayre, UK: We hear about middle-income earners, but how much does you have to earn to be classed as middle income?

Irwin Brinkley, UK: My wife is a housewife looking after a one-year-old. I live in London and pay London prices/housing with no London-weighting. I earn 40,000 a year; too much to receive child tax.

We've had lots of e-mails like this with specific lifestyle issues. In terms of who will lose out the most, which group will it be?


Jenny Scott:

It will be middle to higher income earners because they'll pay this extra National Insurance. But in terms of who gains - you spoke about Mr Brinkley who earns 40,000 a year - he says that's too much to receive child tax. We'll under these new proposals that Gordon Brown announced today. He's given back quite a lot of money through child tax and new integrated child tax credit designed to soften the blow for families just like Mr Brinkley. Now this new child tax credit is now available on incomes up to 58,000 a year - that's a combined income of the household and not just one earner - up to 58,000 a year if you have children. Now that's a lot more generous than it used to be. It tapers off the higher you get to that level obviously to make it so that low income families are better off but a little bit more help there for people who have children.

On the issue of who is a middle income earner - the average income in Britain is something around 22,000 so strictly speaking that should be defined as a middle income earner and that lies in the middle of the National Insurance band where you will now pay 11% and not 10%. So as a middle income earner you are being hit by this.


Manisha Tank:

Andrew Milligan, Scotland: To quote the Prime Minister: "The Budget will continue our drive to strengthen our public services and make Britain the most competitive and entrepreneurial economy in Europe". The former objective might be achieved, although the jury is still out, but how is an increase in the tax burden to almost 40% of GDP achieving the latter objective?


Jenny Scott:

You do have to look at this in context. Yes, it's true that employer National Insurance has gone up by 1%. Now that could be a problem in terms of entrepreneurial activity and competition because one of the reasons that Britain traditionally attracts an awful lot of investment compared with the rest of the Europe is that our tax system is very favourable compared with the rest of Europe. Now obviously if employers have to pay another 1% on the National Insurance, that scratches away at some of that advantage - so yes, that is a concern. But if you look at other tax issues - things like VAT - we pay 17% on VAT here, in Europe they pay an average of 19%, so we are still low in those terms.

In terms of the total tax burden, yes we're paying almost 40% of GDP but countries like France and Germany are paying an awful lot more than that. Countries like Sweden are paying more still - closer to 50% or 60% of GDP. So compared with the rest of Europe, our tax burden isn't that high still - compare it with the US and it is high. We're this sort of hybrid economy in terms of tax-raising powers between the more laissez-faire free market US and the more state-involved economies of countries like Sweden. So yes our tax take is going to go up because of this Budget but it will still probably be below the levels in Europe.

Now having said that, another caveat - there's always lots of caveats in economics - at lot of the European countries like France and Germany have been cutting taxes lately. So in way we are going the opposite way to other countries in Europe - they're cutting taxes as they have been in the last year - we are raising them.


Manisha Tank:

Annette Kerins, Merseyside: Is there any alteration or increase in Stamp Duty payable on buying a house?

With that we've had a couple of text messages. One from Brian, Rochdale who asks: What about Stamp Duty on house buying from now on?

Irene asks for some clarification on the Stamp Duty charges on the purchase of commercial property.


Jenny Scott:

In terms of Stamp Duty, I don't know if viewers can see this Red Book - it is extremely long, 250 pages, I haven't read it all yet, unsurprisingly. But certainly in the Chancellor's speech, he didn't mention anything about Stamp Duty on normal residential homes.

In terms of commercial Stamp Duty - yes, he did talk about improving the incentives to build on brown field sites and converting property above industrial premises and so on. That's more part of his project towards regeneration rather than actually doing anything to cool or affect the housing market. So judging from his speech, the Chancellor has left Stamp Duty alone for normal residents moving homes.


Manisha Tank:

It's quite interesting because Iain Duncan Smith picked up on it and said it's what we don't hear from the Budget speech that we should be more concerned about.

Let's move on to pensioners. Sue Appleyard, UK: How will pensioners fare on this budget?


Jenny Scott:

It is an important question. He did address the issue of pensioners. The pensioner credit is going to be coming in next year, I think and he gave us a few more details on that. It's a horribly, horribly complicated thing but what that is designed to do is to stop pensioners who have their own private savings from being penalised. As this system stands, you get a minimum income guarantee for your pension. If you also have a personal or a private pension that takes you above that minimum income guarantee you were then penalised. This new pensioner credit is designed to stop that anomaly - it is designed to encourage saving and certainly not to discourage it.

The focus this year wasn't on pensions so much. The Winter Fuel Allowance he said would be 200 for every year of this Parliament now. He said that average pensioners are over 1,000 better off than in 1997. Again I haven't ploughed my way through the Red Book - we can only judge by what he said in his actual speech. But in terms of the headlines in tomorrow's papers, it's going to be the National Insurance that really captures people's imaginations.


Manisha Tank:

Finally Jenny, the examination is almost over. The couples are writing in and they want to know about their position. Mark and Olga Kelly in Wales ask: Why did Gordon Brown put the couple allowance with no children only claimable if you are 25 years and over? What about couples like us who are under 25? Another thing which is forgotten - not everyone can claim this benefits i.e. Family Credit if we had children because my wife is on a visa for the UK.

Jennifer Brown in Scotland asks: There is a mention in the Budget about couples with no children getting an extra tax break. Can you provide any extra information on this?


Jenny Scott:

Yes there is something that he's introduced called the Working Tax Credit now that's replaced the Working Families Tax Credit. Obviously to qualify for the Working Families Tax Credit you had to have children. Now he has taken the child element of the Working Families Tax Credit and amalgamated it in the Child Tax Credit - it really is horribly complicated. But he has left us with this Working Tax Credit where, if you're on a low income and you're working, you can claim some money back through your pay packet even if you haven't got children. Now there are various thresholds and levels that you have to earn to qualify for that but he hasn't forgotten childless couples completely although it has to be said he has very much focused on couples with children this time.


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