Fraser Nelson

The Budget bombshells revealed

The Budget bombshells revealed
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An interesting spat is just breaking out over cuts. The Conservatives have a leak from the working of the Budget showing detailed projections in government revenue to 2013-14 covered by all the main Sundays. This suggests income tax rising from £140bn this year to £191bn in four years' time. The Tories say this is not explained by economic growth and that the gap - £15bn - is equivalent to 3p in the basic rate of income tax. Liam Byrne is pushing back, saying Osborne is trying to "mislead the British people" (as if the government would try to do such a thing) and that the increase was accounted for “the economy returning to growth, no more, no less”.

At first, I was a suspicious of the Tory analysis: income tax does tend to rise faster than the economy recovers in a typical post-recession, just as it falls more sharply in the downturn. But then I saw the leaked figures - and right enough, there is a large, whiskered rat. Income tax revenues are forecast to rise much faster than National Insurance contributions. There is no explanation for this. Corporation tax receipts  are forecast to rise up from £29bn now to £43bn in 2013-14. Without a tax rise? Really?

Byrne is talking out of his hat when he says this is just tax revenues bouncing back naturally because HM Treasury's figures will include the made-up sum it pretends it will raise due to the 50p tax rise. I gather that Labour is trying to kill the story by saying the data is old. Not so. The totals were known, but the breakdown was concealed - perhaps because we'd see what dodgy assumptions they had used. These figures are new and fascinating.

My verdict: that The Treasury has no clue where this extra tax revenue is going to come from, and that the Tories are justified in trying to illustrate the size of this black hole by making the standard mechanism (of using PBR08 ready reckoners) to express it in terms of 3p on the basic rate of tax. The Spectator recently made an FOI request for the workings which purport to explain why the 50p tax would raise money (we're still trying to persuade Osborne that it's a ruse). Staggeringly, the Treasury claimed not to have any working. As if. The Instutite for Fiscal Studies made a successful request recently (pdf, p20) for the 45p tax - so I suspect the Treasury is lying.

Bottom line: the government has been making up the figures in Budget 2009, and is trying to cover its tracks. It will have been aiming to deceive not just the Tories, but the bond market about the real state of UK public finances and downplay the likely size of the deficit.  Budget 2009 should have started with the words "once upon a time". It is now unravelling spectacularly.

PS. I should add that, as all these projections are for after the election, matters not a jot what Labour "would" do - by then, they'll be engaged in an internecine civil war on the opposition benches. Perhaps why HM Treasury is not  taking these projections too seriously - the civil servants will know its a pre-election ruse. More seriously, if Osborne has identified a £15bn unexplained gap, it's one he will have to fill with spending cuts or tax rises.