The Chancellor's legacy

Gordon Brown's Pre-Budget report sets out the framework for his swansong Budget next spring - before he gets the movers in to shift next door (he expects / hopes). It is the nature of public finance that the main spending decisions for next year are made now. Gordon Brown has his eyes on the next job next door and needed to present his time as Chancellor as a triumph. But has it been and will history be kind to his time at No. 11?

Gordon does not do simple. A report published by the World Bank and PWC points out that he has added more than 4,600 pages to the fiscal statutes since he became Chancellor in 1997.

Britain now has 8,300 pages of primary tax legislation, second only to India in the red tape stakes. Tolley's Yellow Tax Handbook, a guide to current tax legislation was 4,555 pages long in 1997 when Gordon Brown entered No. 11, its now 9,806 pages!

Mike Warburton of accountants Grant Thornton said: "Gordon Brown now holds the record as the Chancellor to introduce a greater amount of complex tax legislation than any other Chancellor in the history of the UK. It is not only complex but in many cases illogical or deliberately disguised to look like something that it is not."

Some of the most complex additions to tax have been brought in under the guise of "simplification''. For example, his first Budget in 1997 briefly mentioned a "reform of advance corporation tax'' which turned out to be the £5 billion a year tax raid on pension funds. One year later, the Chancellor said he would simplify capital gains tax but has rendered CGT calculations virtually impossible for many without professional advice.

In opposition, New Labour (whatever happened to the 'New', by the way?) pledged not to raise the basic and top rates of income tax. "Save and Invest is our approach'', proclaimed the party's election manifesto, "not Tax and Spend''. Strictly speaking, the Chancellor has kept this promise. But, even though headline tax rates haven't gone up, he has still presided over a big rise in the share of the economy taken by tax.

Gordon Brown's drag act

The Chancellor has made an art form of "fiscal drag'' - 'dragging' more and more people into higher tax brackets. In 1997, the "tax burden'' stood at 37.3% of national income (GDP). It has now reached 39.7% and, on the Treasury's own figures, will top 41% in 2010. Professor Peter Spencer of York University notes that the £500 billion-plus tax take, up from £270 billion in 1997 means the Chancellor is raking tax in at the rate of £1 million a minute. The number of people paying higher rate tax has risen from just over 2 million to 3.5 million, according to the Office for National Statistics.

At the same time the Chancellor has overseen a massive spending boom so that even with all the extra revenue, the Government has had to borrow heavily. Five years ago, the Chancellor said that the UK Government would borrow a total of £28 billion between 2001 and 2006. He was not correct, in fact the true figure was more than £100 billion higher!

Since 2000, real annual public spending growth has averaged no less than 5 per cent - compared to a 2 per cent average during the previous 30 years. The Council tax take has soared, rising by an average of 7% a year since the Chancellor took office.

Brown's legacy lies not just in fatter statute books. There are also plenty of off-balance sheet items. Notably some 700 PFI initiatives he has presided over, making his accounts look good. However, many economists and not a few taxpayers have come to realise this simple truth - the private sector pays more to borrow than the state - thus making PFI very poor value for money.

Furthermore, the unprecedented growth of the public sector workforce will impose a huge pensions burden on future generations - far larger than is provided for in the public accounts. The official figure for the liability was £530 billion in March last year. A pamphlet from the Institute of Economic Affairs, the free-market think-tank, puts it at £1.025 trillion. It would seem certain that in a few short years the only final salary pension schemes still in operation will be those for MPs and civil servants.

Of course, Gordon Brown could point to tax credits as his key social achievement. This benefits system in disguise actually creates a 70% marginal tax rate on low income earners. You may recall his 1% increase in national insurance - a thinly disguised taxation measure taken to disguise the fact that he was breaking a manifesto pledge not to raise income tax. The report, funded by the Joseph Rowntree Foundation, said the working tax credits system had acted 'to weaken incentives to be in work at all and incentives for those in work to increase their earnings'.

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