New Economic Data Lets Brown Off The Tax Hook

by Robet Lee, Tax-News.com, London

21 July 2005

Claims by the UK's Chancellor of the Exchequer, Gordon Brown that the current economic cycle began two years earlier than thought means that the much anticipated tax rises will no longer be required to patch up government finances, or so it is claimed.

Addressing the Treasury select committee this week, Mr Brown told MPs that recent amendments to economic data by the Office for National Statistics suggest the current economic cycle began in 1997 - two years earlier than the date upon which the Chancellor has based his fiscal policies.

As a result, Brown believes that he has a great deal more leeway to borrow to finance public expenditure, averting the need for the Chancellor to raise taxes in order to stick to his self-imposed 'Golden Rule' - that is, borrowing only to finance new investment in public services rather than to pay for day-to-day expenditure.

According to Brown, the combined budget surplus in the additional two years of the economic cycle mean that he has a buffer of £12 to £15 billion (US$21 billion to US$27 billion) in his spending and borrowing plans.

"We would meet the Golden Rule irrespective," Brown told MPs.

"I just ask you to look at the evidence. The evidence is four years of growth above 3%. Now on the surface that suggests that we did not go through a complete economic cycle," he added.

However, City economists were far from convinced by Mr Brown's arguments, and suggested that he is merely cooking the books in a bid to maintain the Golden Rule.

"This isn't a science, it is a complete art, and he is pushing it to the extreme," John Butler, a former Bank of England economist now at HSBC, noted in a Daily Telegraph report.

The new figures mean that a spending review scheduled for 2006 will be postponed until 2007, as will any difficult decisions the Chancellor will have to make on tax.

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