Gordon Brown’s Dismal Fiscal Legacy

What developed nation has taken the biggest steps in the wrong direction since the turn of the century? The answer is not France, Germany, or Sweden. The United Kingdom has that dubious honor. Government spending has jumped from less than 38 percent of GDP in 2000 to more than 45 percent of economic output today. That is the largest increase among OECD nations, and the United Kingdom now has a bigger burden of government than Germany. Higher taxes are an obvious consequence, and Tax-news.com reports on the grim developments:

The average Briton is effectively paying ten pence more on the pound in income tax as a result of Gordon Brown’s ten years in charge of the nation’s purse strings, according to a new report. The study by business advisers Grant Thornton attributes about 70% of this increase in the tax burden to so-called ‘fiscal drag’, also known as ‘bracket creep’ whereby the government fails to adjust marginal income tax brackets in line with wage inflation, meaning more taxpayers have been dragged into the higher income tax bands during Brown’s tenure at the Treasury. This effect also applies in other areas of taxation, such as inheritance tax, where house prices have rocketed during the last ten years, but the threshold at which IHT becomes payable has, comparatively, barely moved. The government’s own figures show that 3.5 million taxpayers now pay tax at the higher rate of 40% - a 58% rise since the Labour government came to power in 1997. …And despite Brown’s decision to decrease the rates of corporate and personal income tax by 2% in his last budget before succeeding Tony Blair as Prime Minister, tax advisers say that lost revenue will be clawed back and more through less-publicised tax changes elsewhere. Francesca Lagerberg, head of Grant Thornton’s national tax office, noted: “Despite headline announcements in this year’s Budget of dropping the basic rate of income tax, aligning national insurance contributions and reducing mainstream corporation tax, the reality is that other increases will lead to a maintenance of the status quo.” “Aligning national insurance to a higher tax threshold will in total eat away most, if not all of the savings generated from cutting the basic rate of income tax by 2 pence to 20 pence from April 2008,” she added.