The Budget: Not Very Taxing on the Bosses

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A terrible squealing and squawking has been set up by the ruling class and their experts as they pretend to be 'shocked' by Gordon Brown's Budget.

Stephen Radley, chief economist at the Engineering Employers Federation, set the tone when he told the 'Financial Times' on 19 April of 'widespread anger' among his members. 'Some of them feel they have been shafted by the government,' he whined. Ian Fletcher, head of policy at the British Chambers of Commerce, was equally furious. He complained that the rises in National Insurance contributions for the poor and the workers were to some extent 'cushioned' by tax credits for families with children, while tax cuts for 'business' had been 'overshadowed by the scale of the tax rises'. On all sides comes the awful din of wealthy outrage that a Labour government has dared to tax the employers and the rich to pay, of all things, for something the employers and the rich don't even use--the National Health Service!

What is the truth behind the squealing? Well, this year (2002-03) the total extra charge in National Insurance and tax on the ruling class is nil. Tax relief for the rich and the employers (including fantastic handouts to big companies for their 'research and development') comes to nearly £500 million. Even next year (2003-04), when the full extent of Brown's increases in National Insurance charges comes into effect, the cost to employers (£3.9 billion) will be heavily 'cushioned' by yet more tax relief for business and shareholdings amounting to £1.4 billion, and the year after that (2004-05) there is still £1 billion of tax relief for the rich and the employers. Some big companies, especially the big drug companies like GlaxoSmithKline, will actually benefit from the budget package.

Even the experts hired to speak up for the rich know that public services have been so dreadfully run down by the Tory government and its New Labour successor that much more money needs to be raised in tax to keep them up to the miserable standard to which they have sunk. The question for socialists is not whether more money needs to be raised, but how.

The obvious answer is that most of the money should be raised in income tax. The more people make, the more tax they should pay. But the chancellor and the prime minister made such an obvious remedy impossible when they recklessly included a pledge in the Labour manifesto not to increase income tax in the entire period of this parliament--all the way (at least) to 2005. That way they knocked out the fairest way of raising tax, and were forced back onto the alternative of increases in National Insurance.

Unlike income tax, National Insurance contributions are not 'progressive'. They do not do more damage to the rich than the poor. They are flat rate increases, payable by all workers. Pensioners, even billionaire pensioners, don't pay a penny towards National Insurance. Income from rent and dividends does not count when National Insurance contributions are assessed. But the worst aspect of National Insurance contributions is that the mega-rich are actually excluded from paying them.

While the poor under a certain level of poverty don't pay income tax , the very rich over a certain level of wealth are 'cut off' from paying any more National Insurance contributions. Gordon Brown's budget makes a pathetic attempt to cover up this grossly regressive aspect of National Insurance contributions by, for the first time, insisting that rich people who earn more than the 'cut-off' rate (£31,000 a year) now have to pay 1 percent of their earnings in National Insurance contributions. This has set off the predictable howl of indignation from the rich. But deep down the rich are thanking their lucky stars that the demon Brown has accepted the basic principle that the rich and very rich should be sheltered from National Insurance contributions.

Their real feelings were revealed two days after the budget, and buried deep in a 'Financial Times' supplement that only the very rich were expected to read. 'Top rate earners', revealed 'Financial Times' writer Kate Burgess, 'will breathe a sigh of relief. Many were expecting Brown to abolish the upper earnings limit and levy a flat rate of National Insurance contributions on all earnings above £4,615 at, say, 10 percent. That would have meant those earning, for example, £100,000 a year would have had to stump up an extra £7,000 a year.' How terrible! The article went on, 'If this limit had been abolished individuals might have had to pay 11 percent on all earnings. That would have hit wealthy consumers' discretionary spending.' I think she means luxury spending. In the same article Eleanor Dowling, senior tax consultant at something called Mercer Human Resources Consulting, makes the same point in a different way. 'This is the first rise in direct taxes since Labour came to power,' she says, 'and it isn't that onerous.'

So the National Insurance rises are nothing like as bad as the rich feared or pretended. But that isn't the only objection to Brown's budget. He has bet everything on improving the National Health Service. Though education has been helped slightly, the other public services, most notably transport, have been left to rot. Everyone can rejoice at more money for the NHS, but there could have been much much more if it had been raised not by a payroll tax that falls on NHS workers as much as anyone else, but by income tax and especially by the long-forsaken supertax which would scoop more and more money from the burgeoning menagerie of fat cats.

It is as though Blair and Brown decided they must raise much more money for the NHS, but resolved in the process not to do too much damage to their friends and benefactors among the very rich. From now on, moreover, they will be straining every muscle further to ingratiate themselves with the rich and to 'mend the fences' they never erected in the first place.