Brown's gamble to cool spending

Jane Padgham12 April 2012

GORDON Brown's tax-raising gamble seemed to have paid off in the City, where economists praised the Chancellor for taking some of the steam out of the consumer boom and helping to keep interest rates low.

The Chancellor announced tax rises totalling £7bn - equivalent to an increase of about 3p in the pound on income tax - to pay for huge injections of cash into public services. The bulk of the extra burden will fall on high earners.

He said the measures would result in a small tightening of the fiscal stance over the next two years, despite an extra £4bn for public services next year and extra cash for the National Health Service.

'Nothing we will do or propose in this Budget will undermine that platform of stability,' he said. Although the main weight of the tax increases will not hit pockets until next April, initial impressions were that they would help rein in the rampant High Street spending that has led to worryingly high levels of debt.

'The rise in personal taxes suggests that the Bank of England should be less aggressive than the market expects on the need to raise rates this year,' said economist Ciaran Barr at Deutsche Bank. Futures markets are currently pricing in 5% rates by the end of the year, a percentage point above their current level.

Higher taxes enabled Brown to paint a slightly rosier picture of the nation's public finances. Figures this morning showed the Treasury's coffers were £1.3bn in the red at the end of the last financial year rather than the £2.5bn deficit forecast in November's Pre-Budget Report.

Brown predicts public sector net borrowing of £11bn in 2002-03 (compared with a November forecast of £12bn), rising to £13bn in the following two years.

He lifted his forecasts for economic growth from next year, despite warnings from City economists that they are already too optimistic. He still sees the economy expanding by between 2% and 2.5% this year, but now expects growth of 3% to 3.5% next year and 2.5% to 3% in 2004. The City consensus is for 1.9% growth this year and 2.7% in 2003. On inflation, he reaffirmed the Bank of England's 2.5% target.

Initial market reaction was muted. The FTSE 100 index pared earlier gains, while sterling dipped to $1.442, or 61.5p against the euro.

Click here for the full text of the Chancellor's Budget speech

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in