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Saturday, March 24, 2007

Budget in perspective

Now the dust has settled, what can we say about the budget?

Well, first of all it was an astute budget. With little room for fiscal manoeuvre in the short term, the Chancellor concentrated on restructuring the tax system and managed this with few overall losers.

The income tax system has been simplified, with the abolition of the 10p rate, the basic rate cut from 22p to 20p and greater use of tax credits to ensure the lower paid do not lose out. The Chancellor has listened to the business community and cut the main rate of corporation tax from 30p to 28p, paid for by other changes to the corporation tax system. This response to the calls from the business community was right both economically and politically. Other changes show further moves towards environmental taxation paying for tax reductions elsewhere.

What can we say of the politics?
The announcement of the 2p cut in the basic income tax rate was made in such a way as to put the Conservatives immediately on the back foot. It is not easy as Leader of the Opposition to reply to the budget speech and Gordon Brown made it very hard for David Cameron.

However, suggestions that the 2p cut was a con trick are wide of the mark. A cursory glance at the budget papers published after the Chancellor sat down showed that there was no attempt to hide what was happening: it was clear the 10p rate was going, for example, and it was clear the budget was to be fiscally neutral.

It does mean the Conservatives are boxed in a bit on economic policy, as demonstrated by calls from the Tory Right for Cameron to be more committed to tax cuts.

And it shows Gordon Brown to be well-attuned to the politics of the next few years.

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