Brown in a fix over Y2K bug

A leading tax expert warned this week that Chancellor Gordon Brown could not afford proposed tax breaks to fund ‘millennium bomb’ fixes in next week’s Budget.

Maurice Fitzpatrick, Chantrey Vellacott’s head of economics, said the tax breaks would breach Labour’s election manifesto pledges and that the 1998/1999 public spending contingency fund is ‘already totally exhausted’.

Rumours circulated this week that Brown would announce tax relief on year 2000 IT expenditures, which are said to be outlined in the April edition of Tax Bulletin.

But Fitzpatrick predicted the chancellor, who will put the final touches to his Budget over the weekend, would sidestep the issue on Tuesday because he was tied to his manifesto pledge.

With the recent surge in public spending, Brown could not maintain his three-year spending freeze and tackle the year 2000, he said. ‘The government cannot breach its election manifesto commitment not to increase public spending but it is under pressure to increase spending on key areas such as the NHS, education and health. Brown won’t address the single biggest issue facing the government as a result.’

Billions of pounds have also been spent on bailing out the Channel Rail Link, extra social security spending, compensation to mining victims and tackling the BSE crisis.

Fitzpatrick’s analysis suggests there has been a surge in public spending since the 1997/1998 Budget. But it conflicts with a report issued by CIPFA this week which stated the government was heading for a substantial underspend.

Although the amount allocated to most departments increased, an ‘over-cautious approach’ to spending has created a bulging reserve of z1.4bn, meaning Brown has more room to meet priority needs in his Budget speech.

Geoffrey Hulme, research consultant for the Public Finance Foundation, called the report ‘excessively prudent’.

‘Factors such as a strong pound and a z6bn increase in revenue could give scope to meet priority spending needs,’ he said. ‘But there are good reasons for Brown to be cautious. It is better to err in that direction than to repeat the mistakes of the mid-1980s boom,’ he added.