GO ON, GORDON ABOLISH BUDGETS

That, says Christopher Fildes, would

be the simplest tax reform, and the last and the best

MR DEPUTY Speaker: It's a nice after- noon, the economy is bowling along, the taxes are rolling in at a rate of half a mil- lion pounds a minute, and the most helpful thing that I can do is to get out of the way. So I have decided not to have a budget this year, and as for Hon. Members with pressing engagements at Cheltenham, I need detain them no further. I commend this non-budget to the House. If only. There is no more deep-seated human instinct than the itch to tinker. Chancellors get it badly. Their big day comes once a year and they want to make the most of it. Some chancellors, including this one, treat themselves to mini-budgets and green budgets just to keep themselves going. It is a vice. As Sir Peter Middleton put it when he was head of the Treasury, there may be many things wrong with the British economy, but few that govern- ments, by intervening, cannot make worse. By these standards Gordon Brown this week did rather well.

He allowed himself a short sermon on wage restraint, which must have come from one of those yellowing budget speeches when bygone chancellors would thank the National Savings Movement for its efforts. In those days they believed that they could twiddle the levers of taxes and borrowing so as to make the economy run at full throttle. Mr Brown spared us that.

He left companies largely alone, beyond shaving a welcome penny off their tax rate. His most alarming threat to them appears to have been well intended. The Inland Revenue, he said, would offer to help busi- nesses in setting up their payroll systems. Until now the words that businessmen had learned to fear most were: 'I'm from head office and I'm here to help you.' Help from the Revenue adds a new terror to com- merce.

More surprisingly still, he left middle- class taxpayers largely alone. There may be terrors lurking for them in the small print, but the worst he seems to have done for them is to make it marginally more expen- sive to be married. He has retreated in good order from his Paymaster (or trust- master) General's inept proposals, which would have drawn their cherished PEPs back into the tax net. Perhaps, this time, he remembered to consult the Treasury. He has concentrated his efforts on one bad tax and on the dreadful thicket where taxes and imposts and benefits meet to confound each others' efforts and everyone else's. Capital Gains Tax had earned its place in the Black Museum of taxes. It incorporated every fault a tax can have.

Its yield, first of all, was puny, the cost of collection high, and the cost of compliance — all those tax accountants working their way through the indexation tables — high- er still. It fell heavily and arbitrarily on individual savers. Companies could get round it, institutional investors never both- ered with it. Successive Conservative chan- cellors did nothing about it beyond finding ways to make it worse. The last of them casually promised to review it when the time was right.

No one could call Mr Brown's revised version simple. The longer you own some- thing, the less tax you will now have to pay on it. If you buy a share and hold it for ten years, and if its price does no more than keep up with his target rate for inflation, you will still be stung for tax when you sell it. For all that, his version is less arbitrary, and it allows him to claim that those who build and sell businesses will be taxed on their gains at nor more than 10 per cent 'the lowest rate ever achieved'. Well, the lowest rate since the 1960s, when Selwyn Lloyd, another Conservative chancellor, first brought capital gains into tax.

Tackling this tax gave Mr Brown the appetite for tackling the tangle of taxes and benefits. This, too, is the inadvertent creation of earlier chancellors. Listening to them as they proudly introduce some new grant for nursing mothers who want to hone their skills by practising the piano on alternate Wednesdays, I have often wondered how their supposed beneficia- ries can be expected to make head or tail of it all. The logical conclusions would have been a Benefit Accountant Allowance, which would let them take professional advice and send the bill to the state — that is, to the rest of us. Maybe this is what Mr Brown means when he reserves £50 million to set up a national network of mentors.

The cost of all this has gone up from budget to budget, in bad times and good, so that it now accounts for the best part of £100 billion and is every chancellor's biggest single bill. Other bills have to move over and make way for it. Far-called our navies melt away, on dune and head- land sinks the fire, but our army of benefi- ciaries still swells and still marches grumpily on — as Mr Brown seems to believe, in the wrong direction.

Of course they do, when they look at the `That's strange, I'm on the corner of Oxford Street and Regent Street too.' alternative. National Insurance, the tax that dare not speak its name, combines with income tax to confront them (as Mr Brown says) with a marginal tax rate of 70 per cent. — something that has been extinct in the rest of the system ever since Geoffrey Howe's first budget made it worthwhile to go to work in the boardroom.

Martin Taylor of Barclays has taken time off from drawing organograms and shred- ding his investment bank to immerse him- self in the jargon of National Insurance. His advice is full of entry fees and LEIs and LPLs (don't ask) and shows once again how absurd it is to expect those who are trapped in this system to understand how it works.

At the end of it all, the Chancellor has put his shirt on a Working Families Tax Credit. He intends this to operate through the Pay As You Earn mechanism, so as to change the balance of advantage and to make it more worth while to work than not to. For the millions who work for them- selves and are not caught in PAYE, Mr Taylor has some more suggestions, couched in even richer jargon. How all this will play with the millions who have never worked at all we shall now see.

It is so important to unwind the perverse accumulation of rewards and penalties that previous chancellors tolerated — pausing only to add complications of their own that to carp at Mr Brown's attempt must seem ungenerous. All the same, what he has actually done is to add a complication of his own, in the hope that it will work in the right direction. 'Only once in a genera- tion', so he began his Budget speech, 'is the tax system fundamentally reformed,' He still has to show that he has the tax reformer's vital instinct for simplicity.

He has, of course, been lucky in his tim- ing. Reforms like his cost revenue, which he must hope to get back later when, thanks to his efforts, the economy is work- ing better. More tax came in from higher earners after Geoffrey Howe and Nigel Lawson cut the rates. At the moment of reform, though, it helps to have money in the kitty. The last tax reformer's budget was ten years ago, when the Exchequer was in surplus.

Today's Chancellor cannot claim that. The best that he can forecast is that he will balance his budget when the next millenni- um arrives. He is looking back on a sub- stantial economic recovery which ought by now to have given him a surplus, and which must by now be at its peak. It will be hard- er going and slower growing from now on. He said as much, although Hon. Members did not appear to be listening.

When that happens, more people will claim more benefits, and we shall set off round the course again, just as we did before — unless, that is, Gordon Brown really has tipped the balance from welfare to work. After that only one more reform would be left to him. He could abolish bud- gets.