Not a giveaway budget, but an impressive one nonetheless

AnalysisThe chancellor is aiming for relatively low growth in public spending, writes Marc Coleman, Economics Editor

Vanguard of the Labour party's left wing and darling of the trade union movement he may be, but in this, his 11th and final budget, Gordon Brown has done something not usually associated with politicians of the left - cut taxes.

His Irish comrade Pat Rabbitte recently proposed cutting our standard income tax rate by two percentage points. As if inspired, Brown did exactly that to the UK's rate of 22 per cent yesterday. Now at 20 per cent, the UK's standard income tax rate is the same as our own (although it should be mentioned that a single earner in the UK needs to earn the equivalent of €63,000 before they pay a higher rate of tax, while for a couple with two children, no tax is paid on the first €35,000).

On Monday, Conservative shadow chancellor George Osborne made the front of the Financial Times by calling for a three percentage point cut.

Brown has also cut corporation tax by two percentage points, from 30 per cent to 28 per cent. Although less than that promised by the Tories, the move may be enough to neutralise their appeal on this issue.

It may not be enough, however, to appease either the DUP or Sinn Féin, who - on this issue at least - find themselves well to the right of the Tories.

With the aim of beating the Republic at its own game, the DUP has called for a 10 per cent corporation tax rate to be implemented in the UK, while Sinn Féin wants an all-Ireland rate harmonised at 17.5 per cent. (The Republic's current 12.5 per cent rate was brought in by the last centre-left rainbow coalition.)

If one thing explains this ideological cross-dressing, it is globalisation: if the Confederation of British Industry (CBI) is to be believed, this budget is just the start of what needs to happen. "The chancellor has acknowledged the need for the UK to compete with the tax regimes in other developed countries in order to secure jobs and investment for the future," CBI director general Richard Lambert said yesterday.

Despite the small size of the corporation tax cut, the thrust of the move was broadly welcomed.

But this was no giveaway budget. Compared to our own Government's target of 12 per cent, Brown has promised to keep growth in public spending in the coming financial year to just over 4 per cent. And much of the tax cuts for income earners and corporations are clawed back by increases elsewhere.

Those currently on the lower rate of income tax of 10 per cent, introduced some years ago by Brown, will now pay the new standard 20 per cent rate, provided they remain above its threshold.

And in a move that has drawn criticism, the rate of corporation tax for small business has actually increased from 20 to 22 per cent. However, that sector still pays a lower rate of corporation tax than larger business. It might also suggest that Brown envisages continued convergence between the rates for small and large business to a median rate of about 25 per cent.

One further aspect of Brown's budget is impressive. Helping the chancellor to achieve his relatively low increase in public spending - of 4-5 per cent over the next three years - is the fact that he is targeting savings of 1 per cent in the public spending budget. Unlike here, public sector reform is part of the budgetary process in Britain.