Just a cotton-pickin' minute... let's have a closer look at that rabbit...
The public finances have deteriorated- since the last budget, net of policy changes, spending is up and receipts down. So despite a fiscal tightening that by 2008-09 amounts to £3bn pa, he's still borrowing £5bn pa more (see here table C2). A key factor has been a £5.5bn pa slump in North Sea revenues, where at a time of booming world oil prices, he's managed to half strangle the Golden Goose by overtaxing it. Brilliant.
He's whacked small business (see previous blogs here and here). When we discussed this on 18 Doughty Street's Your Money Budget Special (here), we couldn't quite fathom why he'd done it. After all, he's constantly wittering on about how important small business is, and it doesn't actually raise that much cash (only £820m pa by 2008-09, even assuming his new £50,000 capital allowance is largely unclaimed- see here table A1).
Subsequent investigation and "words to the wise" suggest the whole thing was a cock-up. The shock 2p cut in the standard rate of income tax was decided very late in the day, and was for entirely political reasons. Obviously it had to be kept a very closely guarded secret, known only to a handful of trusted Treasury officials whose families were being held hostage surety somewhere up North. And the ordinary grunts crunching through all the tedious stuff down the corridor in HMRC were told nothing. They just carried on assuming the standard rate was staying at 22p.
An informed correspondent writes:
"My bet is that they had been working on the corporation tax changes for some time and decided to align the small business rate and the basic rate of income tax - they got badly burnt a few years back when all those window cleaners etc turned themselves into companies to exploit the 0% rate, and we do know that HMRC regard small traders as scum out to evade tax."
Sounds about right, and certainly makes sense of the puzzle. It also strongly suggests all those furious small businessmen like brother Tyler can get the whole thing revisited. They should definitely keep shouting, and also jump up and down a lot. We'll join in.
As for the rabbit-out-of-hat question, the post-Budget polls suggest Gordo may have outclassed himself. People ain't quite as dumb as previously assumed, and they can smell a con trick. As the IFS analysis shows, although his overall package of measures on income tax and National Insurance has left virtually everyone earning more than about £18k better off or unch, once you factor in changes to other taxes- especially the so-called green taxes- car driving air tripping middle and higher income groups are all worse off. Plus of course, although many poorer people will benefit from his additional tax credits, they will do so only by sinking even further into the nightmarish coils of means tested state dependency.
But amid all this post-match rethink, it's still important to remember the key message. Brown ditched his 50 years of socialist belief in hair shirt tax-and-spend redistribution because he's understood we punters are no longer convinced by all that stuff about the public services needing yet more cash. We're crying out for tax cuts.
Nixon in China? Maybe not quite that, but he's surely decontaminated the idea of tax cuts. And if even an old-time religion guy like Gordo is presenting himself as a tax-cutter, surely to Gawd, Dave and George could afford to show a little more spunk.