Thursday, March 22, 2007

UK Budget 2007 – Gordon Brown’s Last Budget

After 11 consecutive years of being Chancellor of the Exchequer Gordon Brown is the longest serving chancellor since 1820 overtaking David Lloyd George (2). As Gordon Brown wrly noted as chancellor Lloyd George successfully combined both being chancellor and being PM. In fact his last budget speech sounded in parts like a pre – election budget. – If not a general election at least a leadership election.

Quick Summary of the 2007 Budget

  1. Income tax cut from 22p to 20p. This is largely financed by abolishing the 10p starting rate and removing allowances in N.I contributions. – “The tax man giveth and the tax man taketh away.”
  2. Corporation tax cut from 30% to 28%. This will largely be financed by raising the tax rate on small business from 20% to 22%. The justification was that it was to avoid people using small companies as a way to reduce income tax burden. However it is strange to increase corporation tax to 22% when income tax falls to 20%. Tax relief on capital investment was also reduced from 25% to 20% this will particularly cost manufacturing firms.
  3. Environmental taxes. Road tax on gas guzzlers will double. Tax on petrol will rise above the rate of inflation in the future. This will have quite a limited impact. Evidence suggests raising road tax does little to reduce the demand for SUVs which cost in the range of £20,000 - £30,000. Overall on the environment Gordon Brown can be accused of just tinkering at the edges. It will do little to make the target of cutting CO2 emissions by 70% a reality.
  4. Increase in Child Benefit. The reduction in tax credits means many on low incomes have an effective marginal tax rate of 70% (with income tax, NI and reduction of benefits and tax credits)
  5. Increase in Pension credits, but the means tested nature of this benefit discourages savings in the long term. E.g. when a single person pension passes £6,100 they have a 40% deduction in tax credit.
  6. Economic Record. The economic performance of the UK continues to remain impressive with economic growth edging upto 3% and inflation still on target for 2%. However an interesting question is how much credit will the voters give to Gordon Brown? Polls suggest the Conservatives are ahead in both economic management and perspectives on the environment

To summarise the overall impact of the budget one could use this choice expression of David Smith, economist at the Times.

“This chancellor is like one of those people you shake hands with only to discover a couple of days later you are missing a couple of fingers.” (1)

1 comment:

Shelly said...

Hi. I really like your blog. Was wondering if you want to add it to my directory? Thanks Shelly