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Brown can't make his figures add up

An interesting spat is just breaking out over cuts. The Conservatives 
have a leak (4) from the working of the Budget showing detailed 
projections in government revenue to 2013-14 covered by all the main 
Sundays tomorrow (5). This suggests income tax rising from £140bn this 
year to £191bn in four years' time. The Tories say this is not 
explained by economic growth and that the gap - £15bn -  is equivalent 
to 3p in the basic rate of income tax. Liam Byrne is pushing back, 
saying Osborne is trying to "mislead the British people" (as if the 
government would try to do such a thing) and that the increase was 
accounted for “the economy returning to growth, no more, no less”. (1)

At first, I was a suspicious of the Tory analysis: income tax does 
tend to rise faster than the economy recovers in a typical post-
recession, just as it falls more sharply in the downturn. But then I 
saw the leaked figures - and right enough, there is a large, whiskered 
rat. Income tax revenues are forecast to rise much faster than 
National Insurance contributions. There is no explanation for this. 
Corporation tax receipts  are forecast to rise up from £29bn now to 
£43bn in 2013-14. Without a tax rise? Really?

  Byrne is talking out of his hat when he says this is just tax 
revenues bouncing back naturally because HM Treasury's figures will 
include the made-up sum it pretends it will raise due to the 50p tax 
rise. I gather that Labour is trying to kill the story by saying the 
data is old. Not so. The totals were known, but the breakdown was 
concealed - perhaps because we'd see what dodgy assumptions they had 
used. These figures are new and fascinating.

My verdict: that The Treasury has no clue where this extra tax revenue 
is going to come from, and that the Tories are justified in trying to 
illustrate the size of this black hole by making the standard 
mechanism (of using PBR08 ready reckoners (2)) to express it in terms 
of 3p on the basic rate of tax. The Spectator recently made an FOI 
request for the workings which purport to explain why the 50p tax 
would raise money (we're still trying to persuade Osborne that it's a 
ruse). Staggeringly, the Treasury claimed no to have any working. As 
if. The Instutite for Fiscal Studies made a successful request 
recently (2) (pdf, p20) for the 45p tax - so I suspect the Treasury is 
lying.

Bottom line: It has been making up the figures in Budget 2009, and is 
trying to cover its tracks. It will have been aiming to deceive not 
just the Tories, but the bond market about the real state of UK public 
finances and downplay the likely size of the deficit.  Budget 2009 
should have started with the words "once upon a time". It is now 
unravelling spectacularly.



(1) http://www.telegraph.co.uk/news/newstopics/politics/labour/6210157/Row-over-Labours-secret-tax-bombshell.html
(2) www.hm-treasury.gov.uk/d/pbr08_taxreadyreckoner_287.pdf
(3) www.ifs.org.uk/bns/bn84.pdf
(4) http://www.timesonline.co.uk/tol/news/politics/article6841321.ece
(5) http://blogs.notw.co.uk/politics/2009/09/browns-148-billion-tax-grab.html

 

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