When Gordon Brown stepped up to the despatch box yesterday to deliver his sixth Budget, he did so after a period of unprecedented respect for a chancellor of the exchequer. Few who have held the position, and certainly no Labour chancellor, have received so little general criticism for their stewardship of the economy and never has a chancellor looked so much like a prime minister in waiting.
It’s not been all easy though. Tussles over the style of party leadership still leaves a bitter taste and the tragic loss of his daughter this year would have made it unthinkably hard to concentrate on running the economy.
Brown also seems ready to start taking a few risks, especially with his public profile and standing among his back-benchers.
In 1997 he allowed the Bank of England the freedom to set interest rates on its own without political interference and levied a windfall tax totalling £4.8bn on the privatised utilities. Of course these were balanced by a cut in corporation tax. The party was thrilled, the FTSE-100 closed up 23.1 and The Sun heralded Brown’s Budget with the headline as one of the using the headline ‘Spice one Gord.’
1998 saw Gordon being congratulated once again and left most people feeling they were not losing out. The tougher moves were technical, difficult for the lay-person to understand, and as a consequence on Brown’s standing in the country.
More success followed in 1999 which saw Gordon announce a new 10p lower income tax rate which would apply to the first £1,500 of taxable income.
The tax band for the basic rate of 23p was widened from £22,800 to £26,500 while the starting point for the top 40% rate was lifted to £28,000.
Business also saw more cuts with corporation tax reduced to 30% for large businesses and to 20% for small companies.
Brown looked happy and his bank-benchers looked even more satisfied with the results. Brown had also announced a new children’s tax credit and an increase in the winter bonus for pensioners. The FTSE-100 rose 28 points and The Times hailed Brown as a ‘showman’ for his ‘tight hold’ on public finances.
That said, the following year did bring problems. In general the Budget was less generous than predicted, after all it was in the run up to a general election. But things got messy when the Treasury and Inland Revenue found itself caught up in a public row with senior people from PricewaterhouseCoopers over the potential costs of changes to the double tax relief regime.
Government estimates put the overall increase in tax liabilities at £100m.
Some estimates put the number at £10bn while PricewaterhouseCoopers’ tax partner Peter Wyman said £1bn to £2bn. An embarrassing public spat followed in which the government was forced into a climbdown and a further review of double tax followed. Although technical, the initial changes to double tax relied would have had costly implications for UK multinationals. But while embarrassing, the issue was not seriously damaging to Brown.
The following year saw Brown’s family Budget pledging major spending on education and health but he could afford this with a public sector surplus of £4.7bn.
2002 should see him tested a little bit more.
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