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Cover Story

Why we can’t afford a third term

Allister Heath

Saturday, 30th April 2005

Allister Heath shows how Gordon Brown has played fast and loose with the facts to portray Britain as a dynamic economy. The truth is that the Chancellor is a tax-and-spender who has laid up huge problems for the future

Brown has also consistently underestimated how much money he could squeeze out of the economy. His long-term borrowing forecast made in his Budget in 2001 will turn out to be wrong by a mind-boggling £100 billion or so; he has overestimated tax receipts every year since the collapse of the dotcom bubble. The budget deficit was £34.5 billion last year, far too high in a year when the economy grew strongly; the shortfall is likely to remain almost as high this year. The true extent of the deficit and national debt would be even larger but for Brown’s campaign to push huge amounts of public spending off-balance sheet, relying on the private finance initiative to pay for many capital projects such as new hospitals or roads. The debt of the railway has also been classified as part of the private sector, even though it ought by rights to appear on Brown’s books. The liabilities of pensions for public sector workers have also exploded and will eventually have to be met by the taxpayer. As a result, taxes will have to go up again to meet Brown’s self-imposed fiscal rules. The Institute for Fiscal Studies expects rises of £11 billion in a third Labour term; the Ernst & Young Item Club is pencilling in £10 billion.

But the taxpayer is already being made to sweat. It is not only the better-off who are facing extremely steep rates of tax, with the top rate up to 41 per cent; because tax credits are means-tested, hundreds of thousands of average families face losing 60–70 per cent of any extra income if they get a rise, robbing them of any incentive to improve their lives.

Stealth taxes have been the name of the game. There has been a 4.7 million jump in the number of people liable for income tax since 1997 — taking the total to 30.5 million. Top-rate taxpayers have surged from 2.1 million under the Tories to 3.4 million today and an extra 600,000 people are likely to be caught in the top-rate net in a third Labour term. There have been similar surges in the number of people liable for inheritance tax and stamp duty, as tax thresholds have not kept up with earnings and house prices. Council tax has also surged (and will rise further after the coming property revaluation); the combined effect was a small drop in average take-home pay last year.

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