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Bloated Credits Fuel UK 'Tax And Spend' Row

by Justin Gorringe, Tax-News.com, London

28 December 2001


Now that UK Chancellor Gordon Brown's pre-budget report has been thoroughly dissected by politicians and the media, infighting is beginning over spending allocations in next year's real budget; and attention is being focused on welfare spending. Despite his professed adherence to Blairite Third Way values, Gordon Brown is known to be on the left wing of his party as far as social inclusion and redistribution are concerned. So 'stealth' = 'socialism', say his critics, and point to new figures suggesting that Britain will soon be spending more on welfare than when Labour came to office in 1997.

Tories claim that new figures from the Institute of Fiscal Studies based on the pre-budget report show that Tony Blair will break his repeated pledge to slash the "bills of social failure". According to the pre-Budget report, the cost of the existing welfare system will rise from £92.2bn in 1996-07 to £115bn in 2003-04. The working families tax credit, disabled person's tax credit and pension credit will push up the cost by another £7.1bn a year. The planned employment tax credit and child tax credit will cost a further £2.8bn, producing an overall total of £125bn. This is up 36% since Labour came to power; and much of the rise is due to increased tax credits for taxpayers at the lower end of the income scale.

David Willetts, the shadow Secretary of State for Work and Pensions, said: "An increase of 36 per cent since 1997 is scandalous from a Government that promised to reduce means testing and to tackle `the bills of social failure'. The disincentives, the complexity and above all the expense of widespread means testing will get even worse when the Government introduces the pension credit, the employment credit and the child tax credit in 2003.''

Other cabinet ministers, facing ever-tighter curbs on their spending, believe the tax credits deliver little in the way of political dividends because the public does not understand them. One cabinet source told the Financial Times: "The time has come for the searchlight to be shone on what this £6bn a year achieves. No other minister would be allowed to get away with it with such little scrutiny."

Ministers seeking big increases in their own budgets in their current negotiations with the Treasury include Alan Milburn, the Secretary of State for Health, Estelle Morris, the Secretary of State for Education, Stephen Byers, the Secretary of State for Transport, and David Blunkett, the Home Secretary. They claim the Chancellor is giving his pet schemes special protection. But Mr Brown was unrepentant when he addressed the Parliamentary Labour Party before the Commons Christmas recess. Minutes of the meeting, passed to The Independent, reveal that the Chancellor said: "It is not a matter of sacrificing one part of our manifesto, i e alleviating poverty, for another, i e investment in public services. The tax credit agenda is making work pay and moving people from benefit into work."


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