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Brown’s budget

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Issue 1739

Brown’s budget

The phoney giveaway

GORDON BROWN’S budget last week was hailed by papers from the Sun to the Guardian. They celebrated his “help for families” and declared that “everyone’s a winner”. But nobody gained much-except the rich, who were cheering his decision to leave their wealth untouched.

There were small cuts in income tax which will give a few pounds to most people, and there were some benefits rises for low earners with children. They will welcome every pound, but a little extra is not going to transform their lives. Much of the money Brown gave out was in the form of tax credits. These are very complicated, means tested, and many people do not know they can apply for them. The overall result of the budget is that most single workers will see their income rise by about half of 1 percent. A couple with two wages and two children get a 1 percent rise.

The poorest 10 percent of people in Britain will gain about 1.65 a week.

  • Five million adults and two million children live in households where no one is in work. They will gain nothing from Brown’s array of tax credits, which are only available to people with jobs.
  • The NHS received 1 billion over three years, or 330 million a year. This represents a spending increase of half of 1 percent.
  • Single parents, including those with children under five, will have to go to regular interviews to “encourage” them to seek work.
  • Military spending rises by 11 percent to 24 billion.
  • New Labour’s Working Families Tax Credit (WFTC) is up in the budget. This credit is paid through your wage packet and means that you pay less in tax or, for very low earners, get a little extra than your normal income.

But it is very restricted. You start to lose entitlement when (as the incredibly complex regulations state) your net income (after tax, national insurance and half of any private pension payments) rises above 92.90.

All entitlement is lost on a gross income over 360 a week. And WFTC cannot be claimed by anyone who works fewer than 16 hours a week. In addition WFTC is counted as income, so people who receive it lose housing benefit and council tax benefit. This can reduce the “headline” figure of apparent gain by 75 percent.

The same effect applies to the 40p an hour increase in the minimum wage. It could mean 15 a week extra for a full time worker, but around 11.50 of that could be taken away by lost benefit.

  • Brown gave lorry owners 105 million through changes to the licence system.
  • Pensioners get just 5 (to 72.50) for a single person and 8 (to 115.90) for a couple.

Brown refused to link future pension increases to the rise in earnings. If this link had not been broken in 1979, the single pension would now be worth 99.80. Brown’s Pensioner Credit (a scheme to help people who have some private or occupational pensions to keep some means tested benefits) will not be introduced until 2003.

Even then the extra credit will be counted as income and, therefore, says the Chartered Institute of Housing, pensioners could lose up to 85 percent of the credit’s value through reduced entitlement to housing and council tax benefit.

  • Inheritance tax will not be paid on any estate worth less than 242,000, a 3.5 percent increase in the threshold.

John Whiting, a tax partner at accountants PwC, said, “Before it came into government Labour said it would reform the inheritance tax regime, but it hasn’t. The tax has always been too easy to avoid and it raises peanuts.” The rich also benefit from increased tax-free savings limits, extensions to share option schemes and changes in the VAT system.

“THE measures in this budget will not deliver on the government’s aim to wipe out child poverty. They do nothing for families where the parents cannot work”

  • NEERA SHARMA, policy officer for Barnardo’s children’s charity

“PRUDENCE has overtaken fairness. The government’s strategy is founded on one-off gifts and means testing. This is patronising and demeaning”

  • MERVYN KOHLER, Help the Aged

“THE budget will encourage more car use, increase congestion and pollution, and make the problem of climate change even worse”


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