Cicero Policy Briefer

Issue 11, April 2007

A Liberal Democrat Response to the 2007 Budget

By Julia Goldsworthy MP, Liberal Democrat Shadow Chief Secretary to the Treasury

This year’s budget reveals that Gordon Brown is as anxious as the current Prime Minister to create a legacy before leaving his current post.

It’s important to give credit where it is due—part of that legacy will be a strong record of economic growth and stability over the past decade. Making the Bank of England independent—one of his first actions as Chancellor back in 1997, and originally a Liberal Democrat policy—was critical to achieving this. But this will not be the only record by which he is judged.

The Chancellor will also be remembered for presiding over spiraling personal debt, with millions borrowing beyond their means to get on the housing ladder and struggling to service their debt payments. His silence on this growing problem will leave problems for his successor as we expect higher interest rates and greater debt burdens. Whoever his successor is will have to think ahead about how to tackle what could pose a serious threat to our economic stability in the medium term.

Brown would also like to be remembered for tackling child poverty. But unfortunately the figures just don’t stack up. This Budget’s contribution to this issue goes less than a quarter of the way towards enabling the government to hit their own targets. And I’m sure the news this week that the number of children living in poverty has risen by 200,000 will make very uncomfortable reading for him. Tinkering with the discredited tax credit system is not going to be enough to tackle this issue head on.

We saw Brown present, somewhat half-heartedly, a Budget that was slightly green around the edges—but which ultimately illustrated his unwillingness to tackle the changes that would have the most significant impact on this country’s carbon emissions head on. The increases in vehicle excise duty are so small that they will encourage just a third of people to switch to environmentally friendly models. However, they will hit many people who already have cars and cannot easily change. On tackling aviation emissions, we saw nothing more than the rubber-stamping of proposals set out in the Pre-Budget Report last year, and introduced back in February. The result is only modest increases in green taxation, which are not offset by cuts elsewhere, and which will only perpetuate the public’s deep-seated cynicism about the motivation behind introducing such changes.

Of course, the 2007 Budget will be remembered primarily for the changes that the Chancellor has made to the standard rate of income and corporation taxes. In both cases the headline is bold and eye-catching, but the bottom line is that these tax cuts will be funded by tax increases for smaller businesses and individuals on low incomes. The basic rate of income tax will be cut by 2p—just as the Liberal Democrats suggested in our own proposals last year. However, unlike our proposals, this tax cut will be funded by increasing the starting rate from 10 to 20 pence in the pound—in other words doubling the marginal rate of taxation for taxpayers with the lowest incomes. The same goes for corporation tax—the headline grabbing 2p cut was another sleight of hand. Small businesses will lose £850 million as a result of the corporation tax rate on such businesses rising, in effect, from 19 to 22 per cent.

Such a cynical Budget, disproportionately benefiting society’s better off at the expense of the poor, will be sure to taint the beginnings of a Brown premiership. A Budget that has failed to live up to the Chancellor’s recent rhetoric on the environment and has undermined his supposed commitment to fairness does not bode well for the future.

Julia Goldsworthy MP is the Liberal Democrat Shadow Chief Secretary to the Treasury and can be contacted here.

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