It is said of any Budget speech that it is not how it looks on Budget day but how it looks six months later. Gordon Brown’s Budget will look the same in six months as it does now – because most of the measures announced will not take effect until some time in the future.
The reduction of 1% in corporation tax will take effect from 1 April 1999, abolition of advance corporation from 1 April 1999, and extension of enhanced first-year capital allowances from 2 July 1998 and 1 July 1999.
The reduction in the main rate of corporation tax to 30% will be from 1 April 1999 and advance corporation tax will be abolished from 6 April 1999. Small companies corporation tax will be cut to 20% – again from 1 April 1999.
Radical reforms of National Insurance will come into effect also from April next year.
There was Budget gain for those lower down the income scales but no pain for those on the higher scales.
Inheritance tax was not increased nor were its rules modified; mortgage tax relief stayed in being, albeit at 10%; and there were no additional taxes on company cars or car parking space. Nor was there a tax on child benefit for the higher earners.
The only redistributive element was that married couples allowance would be reduced from 15% to 10% – again in 1999 – to pay for the increase in child benefit.
The no-pain came about because the chancellor discovered his government departments had spent #1.5bn less than they had been budgeted to spend.
Also tax receipts were more buoyant than had been expected – some #4bn more.
The Budget is also a part of the mosaic that puts an end to Old Labour.
We have had Gordon Brown’s ‘Welfare to Work’ and, since the Budget, Frank Field’s proposals for reform of the welfare state. The Budget is part of this trilogy that encompasses Old Labour’s vision of social justice and leaves the way clear for Blair’s modernistic version of New Labour.
Old Labour can be expected to fight on reforms to housing benefit, which costs the nation #12bn a year; also on the rate of the national minimum wage and trade union rights; but when the dust has cleared the vision of the future will be Tony Blair’s vision, with Old Labour thoroughly subsumed in the New.
Stuart Bell is Labour MP for Middlesbrough and adviser to Ernst & Young.
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