I got sent this emailthis morning from Moneymail. Obviously, it could be a lot of nonsense but it's worth a read anyway for anyone trying to make sense of what Uncle Gordon put together with yesterdays budget.
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Dear Kathy
Wow.
After 10 years of stealth taxes, U-turns and nasty surprises in the small print, you'd think that Gordon Brown - or Uncle Gordon, as he shall forever be known after his colleagues' 'Stalin' jibes - would have lost his capacity to surprise with his cynicism.
Tony Blair was always seen as the master of spin, but the Chancellor's final Budget shows that if anything, the man who's likely to be our next - unelected - Prime Minister is even more slippery.
What do we mean? Well, let's have a look at what's going on behind those "2p off income tax" headlines...
The Chancellor left the best until last with his closing announcement in the Budget that he'd knock the 22% income tax rate down to 20%. But as always, things are not quite what they seem.
The cut - which comes into effect from April 2008 - will cost £8bn. But he's scrapping the 10% starting rate of income tax, which covers around the first £2,150 earned after personal allowances. So people will start paying the 20% rate sooner. In other words, the less money you earn, the more likely you are to be paying more income tax.
So he's grabbed a few headlines by spending £700m and taking more money from low earners. Oh, except, actually, it won't even cost him £700m. Because National Insurance Contributions (NICs) - you know, those things that Governments say are contributing to your state pension, but are in fact just another income tax - are being 'realigned' with income tax bands, so that people earning up to £43,000 a year will pay 11% NICs. This will earn the Treasury another £1.5bn by 2009.
But of course, it takes time to work all that out, which means that Uncle Gordon got to score a few political points by wrong-footing the Tories who haven't had the guts to commit to any significant tax cuts as yet.
What about big business? They must be cheering that 2% cut in the coporate tax rate, right? Well, as Professor Peter Spencer of the Ernst & Young ITEM Club said: "It is a con trick, no doubt about it. I will be amazed if people are duped by it for more than five minutes."
As The Telegraph points out, companies will pay £1.4bn less in corporation tax in the 2008/09 tax year, but changes to capital allowances will free up £1.5bn in the same year - another headline grabber, and yet another net profit for the Chancellor. And of course, it was just bad news for small companies, who'll see their corporate tax rate rise from 19% currently, to 22%. Oh yeah, and the companies that explore in the North Sea still pay 50% - no cut for them, even though we need all the energy we can lay our hands on.
So what else did he do? The Isa rate finally moved upwards - from April 2008, you will be able save a whole extra £200 a year tax-free (well, tax-efficiently, at least), and put £3,600 of that in cash, rather than £3,000. As we've pointed out on numerous occasions, if the Isa allowance had risen in line with inflation, you'd now be able to save £8,400 - so in real terms, the Isa allowance is still way below what it was in 1999.
He's also stood by his beloved tax credits system. If anything sums up why the Chancellor shouldn't be allowed to run an egg and spoon race, let alone an economy, it's the tax credits system.
This arcane shambles, which has been roundly criticised by nearly all involved save Uncle Gordon, is incomprehensible to its recipients, and barely understood by its administrators. It has resulted in idiocies like low income families paying a marginal tax rate of 70% once their earnings reach a certain level (around £7,500).
Not much of an incentive to get back to work - and it'll be even worse from 2008, because once the 10% basic income tax rate is removed, and due to other changes in tax credits, families start paying the marginal 70% rate at an even lower level of income - around £6,500.
So overall, it was the usual mendacious conjuring trick that we’ve come to expect from the Chancellor – only even more chock-full of lies and half-truths than usual.
One of the reasons we’ve got the biggest tax law bible in the world, apart from India, is that the Chancellor generates all that paperwork effectively so that he can hide his tax rises from the electorate. All that bureaucracy, so that one man can put on a good show for one day, and attempt to pull the wool over the public’s eyes while the press, the pundits and the financial industry scrabble to keep up with all the small print and exceptions.
No salesman would be allowed to get away with it – why do we tolerate it in our politicians? We don’t have the answer – but we do suspect that when the economic climate becomes less forgiving, it’ll be a lot harder for the Chancellor’s successor to pull the same tricks that he has for the past eleven Budgets.
