Gordon Brown’s speech was arguably his most challenging half hour as chancellor, and he delivered it swiftly and with head held high. But despite not raising taxes per se, a number of announcements have already angered the business world.
At the centre are Brown’s initiatives to clamp down on tax avoidance, which many see as over the top, and missing the root of the problem. The fact is that much avoidance can be put down to the over-complexity of UK corporation tax.
Howard Flight, shadow chief secretary to the Treasury, said the only way to combat avoidance is to attack the system itself. ‘My own view is the only thing that will work is to do what the US has done blatantly exempt smaller businesses from a whole lot of regulation,’ he argued.
Instead, Brown’s proposals are heavy-handed to say the least. They include employing an extra 1,000 staff, and the recruitment of a ‘number of highly-specialised anti-avoidance experts with proven ability to identify and shut down legislative loopholes and abusive tax avoidance schemes.’ The aim is clear: to make VAT legislation ‘avoidance-proof’.
This, claims Brown, will earn the Treasury an extra £2bn a year by 2005/06, which is, according to Flight, a deliberate attempt to ‘cook the books’.
Flight expects the government will have no option but to raise taxes again, if it is to meet its spending commitments. ‘Public finances will head towards shambles in the next three years, and he will be forced to raise taxes or cap spending,’ he warned.
‘Cutting back on spending would be the beginning of the end for Labour. They have bet everything on a rash spending campaign.’
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