Monday, May 14, 2007

Gordon Brown Could Have Abolished Income Taxes

In reviewing Blair's legacy, whilst praising his overall performance on the economy, i scored his government a 'D' on tax and spending. On further study, and using the methodology adopted by the ALS, i would revise this to an 'F'.

The increase in government spending since Labour came to power is truly breathtaking. In particular, nearly all this increase occurred after Labour's second electoral victory in 2001. Up until that point, they were the very model of a tight-fisted government. But in 2001, the spending tsunami was fully unleashed.

In fiscal year 1996/7, the government spent 392 billion quid (adjusted for inflation and in 2006 money). In fiscal year 2006/07 it spent 552 billion - an increase in real terms of 160 billion.

Adjusting for population growth (4% under Labour from 57.5 million to 60 million), this increase reduces to 138 billion quid.

In fiscal year 2006/07, the government collected 141 billion in personal income taxes.

In effect, had Gordon Brown simply held government spending constant (adjusted for inflation and population growth), personal income taxes could have been entirely abolished.

Hold that thought.

There is no reason to suppose that this is impossible. Govt spending should only rise during recessions. During the good times, companies make more money, pay more tax, hire more workers, who then need less State support and so on and so on. During the Labour administration, the UK economy has experienced its longest period of sustained economic growth for more than 150 years. There is simply no need for spending to have risen to such stratospheric proportions.

This could go down as the most profligate administration of all time.

Source; HM Treasury Data on Public Sector Finances,

In particular, see worksheets A4 (GDP Deflator), B5 (Real Public Expenditure), C2 (Tax-take), C4 (breakdown of Govt Receipts) and D1 (Net Debt)