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FactCheck: Labour's tax bombshell?

By Channel 4 News

Updated on 20 September 2009

The shadow chancellor claims to reveal figures showing secret government plans to hike up taxes. We're not convinced.

George Osborne (credit:Reuters)

The claim

"Labour's secret spending plans, which Gordon Brown never wanted to make public, appear to reveal an income tax bombshell."
George Osborne MP, Conservative shadow chancellor, 20 September 2009

The background

The Lib Dem conference is in full swing, but a row between the government and the Conservative party has grabbed political headlines.

Last night, Shadow Chancellor George Osborne claimed to release details of Labour's "secret" spending plans, in the form of a leaked Treasury document showing the amount of income tax the government expects to raise over the next five years.

These showed, the Tories claimed, that Labour had "factored in an income tax hike of £14.8bn" after the election. In other words, an extra 3p on the rate of income tax.

Labour were quick to respond, with Chief Secretary to the Treasury Liam Byrne accusing Osborne of "trying to mislead the public", and Foreign Secretary David Miliband saying the Tories were engaged in "the politics of the big lie and the big smear".

So who is spinning the books?

The analysis

Until the pre-budget report, due later this autumn, the budget is the usual reference source for official Treasury financial predictions.

It sets out the changes the government is making to tax and spending policy, and forecasts how much money it expects to raise and spend in future, taking into account how the economy is expected to behave.

For example, if the economy grows, the government will automatically take in more tax without having to raise tax rates by any pence in the pound. A bigger economy means more people working, higher average earnings, and more income tax for the Treasury.

Similarly, when the economy shrinks, people lose their jobs and the government automatically takes in less income tax money. The post-credit crunch collapse in tax revenues accounts for a big part of the current hole in the public finances, rather than the government purely cutting taxes or spending more money.

According to the figures Osborne released, gross income tax revenues are due to increase from £144.7bn in 2010-11, to £191.8bn in 2013-14; a £47bn, or 32.5 per cent, increase.

And what about the budget? The main report sets out the amount of income tax the government expects to raise up to this financial year, 2009-10.

But additional tables, published alongside the budget in April, give figures for the same period covered by the Tories' numbers: up to 2013-14.

These published, projected income tax takes are exactly the same as those quoted by the Tories (see Table 2.9 of this document)

Not exactly bedtime reading or water cooler fodder, but in no way, shape or form secret.

So do they disguise an income tax bombshell?

The Code for Fiscal Stability - the rulebook for making budget forecasts - sets out that projections must be based on government decisions. So to put out a document with projections based on a secret plan would be a huge civil service no-no.

Some income tax increases, for big earners, were set out in the budget. The most headline-grabbing, a new, higher 50 per cent tax rate on earnings over £150,000 a year, is expected to raise £2.4bn, according to the Treasury's estimates.

Taking away the tax-free personal allowance on high earners is also expected to bring in another £1.5bn.

These are fairly small beer in terms of the whole income tax take, which is, as Osborne highlighted, due to increase by almost a third over four years.

The Treasury set out in the Budget that it expected income tax and national insurance receipts to take a big hit this year (2009-10). However, the take from both is "expected to recover from 2010-11 as the economy picks up".

Income tax receipts are expected to pick up speed more quickly than national insurance receipts, which are projected to rise by a quarter over the four years rather than income tax's third. But national insurance receipts tend be more stable - they also took far less of a recession-year hit than the income tax take.

The verdict

The figures Osborne quoted don't hide any secret tax-hike bombshell. They are the same numbers put out by the Treasury with the budget, in April.

Of course, it's not guaranteed that the government will raise as much income tax as it expects - its growth forecasts may prove optimistic and the recovery slower than predicted, which would mean fewer people in work, paying tax. Things could go the other way too, with the economic picture turning out much rosier than expected.

But the figures in the budget are based on the government's best estimates of how their policies, as set out in the budget, will take effect, rather than evidence of a secret plot to sneak in a tax rise to balance the books.

FactCheck rating: 4.5

How ratings work

Every time a FactCheck article is published we'll give it a rating from zero to five.

The lower end of the scale indicates that the claim in question largerly checks out, while the upper end of the scale suggests misrepresentation, exaggeration, a massaging of statistics and/or language.

In the unlikely event that we award a 5 out of 5, our factcheckers have concluded that the claim under examination has absolutely no basis in fact.

The sources

Full Budget 2009
Budget 2009 supplimentary material, Table 2.9
Budget 2009: the economy and public finances - supplementary material
The Code for Fiscal Stability (point 23)

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