Sunday, March 20, 2005
Brown in £35 billion tax hike
Posted by David Smith at 10:59 AM
Category: David Smith's other articles

TAXES will go up by £35 billion over the next four years under Labour, according to Gordon Brown's own figures.

The statistic, buried in last week's budget documents, will be used by the Conservatives to refute Labour claims that a Tory government would cut £35 billion from public spending.

Although it has been known that the tax burden would rise, the £35 billion figure is new and is an embarrassment for Labour. Tony Blair ran into a political storm last week for using this precise figure for Tory cuts, claiming it was equivalent to sacking every GP, nurse and teacher in the country.

Tax and spending are set to dominate the election agenda. Labour is to tear up the pledge card launched by Alan Milburn last month for a new one from the chancellor that promises not to raise income tax rates during the next parliament and highlights last week's budget help for pensioners.

Blair has summoned ministers to a cabinet meeting next week in the Easter recess to approve Labour's manifesto and confirm May 5 as polling day.

The Treasury's figures show that the tax burden — taxes as a share of gross domestic product (GDP) — will rise from 35.6% last year to 38.5% by 2008-9. With GDP currently £1,200 billion, the rise is the equivalent of a £35 billion tax hike.

Most of the increase will come through so-called "fiscal drag", as income tax allowances rise by less than earnings and people are dragged into paying more tax by stealth.

Since Labour was elected in 1997, more than 4m extra people are paying income tax — far outstripping the rise in employment — and 1.3m more are paying tax at the top 40% rate. Experts predict there will be another 750,000 higher-rate taxpayers in the next four years.

"Fiscal drag has been the biggest single tax increase under this chancellor," said one top accountant. "Income tax rates haven't changed since 1997 but receipts have doubled." A £50,000 earner will pay an extra £641 next year because of this, while a £100,000 earner will see their bill rise £1,319.

But experts warn even this will not be enough. The Ernst & Young Item club, which uses the Treasury's model of the economy, says Brown will need to introduce £10 billion of new taxes. Other independent bodies, including the Institute for Fiscal Studies and Price Waterhouse Coopers, agree.

"Brown is going to violate his golden rule and he will need to raise taxes at some point by £10 billion," said Professor Peter Spencer, chief economic adviser to Item, an independent forecasting group. Spencer predicts a £4 billion windfall tax on the banks next year, as well as other business tax hikes. Other economists believe the chancellor will repeat his 2002 tax hike, by raising £8 billion in higher National Insurance contributions from firms and employees.

Brown's budget last week appears to have preserved Labour's advantage over the Tories. A YouGov poll for The Sunday Times today puts Labour on 37% support, against 32% for the Tories and 23% for the Liberal Democrats. This would give Labour a majority of more than 100 seats.

The poll also shows that the budget has reinforced the government's reputation for managing the economy well. By three to one, 50% to 17%, people trust Labour to make the right decisions about the economy. In contrast, voters do not trust the Tories, by a margin of 58% to 31%.

No party has ever won an election when behind on this key question.

This is despite the fact that voters do not believe Labour's assurances about tax, with 65% predicting a rise if Labour is re-elected. But 48% would expect higher taxes under the Tories and only 15% expect cuts.

The countdown to the election is quickening. Blair's Easter meeting — cabinet meetings are never usually held during parliamentary recess — is the surest sign yet that he will call the election for May 5. The cabinet session on March 31 will pave the way for the prime minister to make the announcement on Monday, April 4.

The replacement pledge card to be masterminded by Brown follows criticism of Milburn's version for being "too vague". The party's private focus groups reported voters consistently commented on its lack of measures for pensioners. Its ill-defined promises included "your family better off" and "your child achieving more".

Blairites have complained it was Brown's "sulking" and refusal to give them any details of the budget that led to the card failing. About 1.5m cards have already been printed. Brown's pledge not to raise income tax during the next parliament echoes the 1997 and 2001 cards.

Privately Blair has admitted that Labour has lost a fifth of the voters it won in the previous two elections. The admission comes after research by his pollster Philip Gould showed voters were disillusioned with Blair over immigration and the Iraq war, and were weary of new Labour after eight years.

Blair’s private fears are consistent with opinion polls that show support for the party has fallen to less than 40%. Labour was getting about 50% ahead of the 2001 election.

A senior Labour source said: “Turnout will be key for us in the election. In 2001 it plummeted to 59% and if that was repeated, it could have a big effect. It is crucial that we get over 60% this time to ensure a big majority.

Today’s YouGov poll bears out some of Blair’s fears. While 46% say he is doing well as prime minister, 50% say he is doing badly. In contrast, Brown is said to be doing well by 64%.

From The Sunday Times, March 20 2005

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