If it's a con trick, it's not a bad one

If the reaction to this week's budget is anything to go by, the Tories have suddenly become a lot more worried about Gordon Brown. The right-leaning elements of the press (i.e. most of it) have been almost unanimous in writing off the unexpected 2p cut in the basic rate of income tax as "a con trick" (the Mail et al), "a ruse" (Telegraph) and "robbing Peter to pay Paul" (Times). Brown is apparently aware that this last is a perfectly viable strategy in a democracy, provided that the Pauls outnumber the Peters.

It's a sure sign that he's put one over the Opposition -- but is it a fair criticism? Well, in a sense it is: Brown has largely funded his generosity by abolishing the 10p starting rate of income tax and "aligning" the National Insurance bands with those for income tax. The distinction between these two levies now only really exists to allow the Government to maintain the fiction that it has not raised personal tax rates during its decade in office. Brown has also boosted revenues by raising the traditional "sin taxes" (booze and tobacco) and raising fuel duties and car licensing fees for the largest vehicles.

Even if these changes largely offset each other, is that a bad thing? One of the principles of "good" taxation is that you try to raise money from "bad" things, so as not to create perverse incentives. Income is mainly derived from work, which makes it a good thing, so reducing the income tax burden is in principle good for the economy. In contrast, the things Brown has taken to taxing lately -- this week's duty increases, plus the airline passenger fees that were introduced in the pre-budget review late last year -- are all things that the Government in some sense seeks to discourage. (Cheap travel has definitely been added to the traditional "sins" of boozing and smoking. The predictable anguished reaction to the higher cost of driving and the airline levies seems to confirm my working assumption about the "green-ness" of the population: people are keen to reduce pollution, as long as they don't actually have to change their own behaviour).

As for the income tax changes, you can certainly argue that they could have been done in a better way. Abolishing the 10p rate simplifies the system (though most people will recall that the 10p rate was only introduced in 1999, by the same Chancellor). But it does mean that some of the working poor will pay more tax. Supposedly this will be offset by the promised increases in the tax credit system. It would have been better and much less bureaucratic to ditch this labyrinthine scheme and raise the minimum tax threshold, if the Chancellor was really determined to cut the basic tax rate.

Even with this caveat, this doesn't look like a bad day's work, economically as well as politically. Brown has slightly simplified the income tax system and shifted part of the tax burden on individuals toward consumption, particularly consumption of items the Government wants to discourage. That's not a con -- it's tax reform. If this triggers a real debate among the major parties about how we should be taxed in the long run, that would be a damned fine thing.