Taxed until the pips squeak

GORDON BROWN is probably celebrating, with that thin smile of his, the news that a record 30.7m people will pay income tax this year, compared with around 26m when he came to power in 1997.

This awesome statistic is confirmation once more that the sleight of hand which has characterised his Chancellorship from the start - the pretence that New Labour intended to keep Britain's tax burden low in order to encourage enterprise and growth - is still at work six years later.

And it is a figure that can be spun in a favourable light, even though what it really tells us is that Britain is daily becoming a dangerously high-tax economy - an alarming echo of former Chancellor Denis Healey's promise in the Seventies to 'squeeze the rich until the pips squeak'.

The upside to the Inland Revenue's announcement is that it means more people are in work than ever before - including many with part-time jobs, among them mothers who have been able to return to the workforce because employers now offer flexible working hours to provide time for taking care of children.

Of course, that is unequivocally a good thing, and so is the fact that, while jobless levels have been rising across Europe in recent years, the number of British unemployment-benefit claimants has remained well below the benchmark million.

Indeed, the South East is basking in something close to 'full employment', with jobs available, mostly in the service sector, to all those willing to look for one.

So isn't this exactly what we would expect to see in an economy which is getting stronger year by year?

Well, yes it is. But the logic is not so simple. The bigger picture is that the rising number of British taxpayers is just one reflection of a ballooning volume of taxes being collected on all fronts, to pay for enormous, but largely ineffectual, increases in public-sector spending.

Within that rosy employment picture, manufacturing jobs have been steadily disappearing (thanks, in part, to red tape and extra employers' National Insurance costs imposed by Labour) while two thirds of all new jobs created in the past year have been in the public sector.

The number of State-funded jobs has risen by more than 350,000 since 1998, and could increase by a further 500,000 in the next five years as Brown's spending spree continues in full swing.

These new public-sector workers are also taxpayers, including all those 'diversity co-ordinators' and 'best-value strategy trainers' who have such a range of wellpaid posts to choose from in The Guardian's weekly recruitment columns.

But almost none of these workers will make any direct contribution to the prosperity of the nation in the way that workers in manufacturing and value-added services do.

Nor, judging by experience so far under this Government, are many of them likely to bring improved customer satisfaction to health and other services provided by the State.

They will simply add to the burden which weighs down the productive parts of the economy and threatens to drag us all back to the downgraded, demoralised state in which Labour ministers left Britain last time they were kicked out of office in 1979.

That burden has been accumulating for six years, often without the ordinary taxpayer noticing. Conservative spokesmen like to point out that Gordon Brown has presided over 60 tax rises, but many were so sneakily presented that they barely registered at the time.

The notorious £5bn taxgrab from pension funds in 1998, a major contributory factor in the current pensions crisis, was the perfect example of Brown's technique.

Meanwhile, he has continued to claim that Labour's 1997 manifesto pledge about keeping taxes down was really all about not increasing the basic and higher rates of income tax - 22% and 40% respectively. The trick worked because those figures are such important headline figures in taxpayers' minds.

And Brown was cleverer still when he introduced a 'starter' rate of only 10% on the first, small slice of taxable income - a trifling measure supposed to ease the pain for new taxpayers, but really designed to allow him to congratulate himself in every Budget speech for introducing lower tax rates.

One of the factors frequently overlooked in the masterly sleight of hand is the effect of income thresholds, which have not kept pace with the rate at which earnings rise.

Because the higher-rate income tax threshold (now £30,500) has been steadily falling behind wage inflation, more than a million more people now pay higher-rate tax than in 1997.

Ironically, that includes many teachers, middle-ranking police officers and health service bureaucrats who thought New Labour was on their side, and voted accordingly.

Perhaps, by now, they have also figured out that even Labour's superficial line about keeping income-tax rates stable was a lie, since the 1% across-the-board increase in employees' National Insurance contributions earlier this year was simply an income tax increase by another name.

So there is no separate National Insurance fund or purpose, just one big Inland Revenue collecting bucket.

One way or another, thanks to the National Insurance rise and swingeing council tax increases - which were introduced to boost local authority salaries and their pension contributions - a typical family (with two adults on average earnings and a modest house) is paying more than £500 extra to Brown this year than last.

Perhaps the most vivid way of expressing the impact of this rising burden on our national economy is the Adam Smith Institute's calculation of Tax Freedom Day, the date each year on which we theoretically finish working for the taxman and start working for ourselves.

In 1997, it fell on May 26; this year it was June 2; next year it will be June 7. At this rate, according to other financial experts, within two years we will be more heavily taxed than the Germans, who are caught in the Eurozone vice which insists that taxes must rise to ward off fiscal deficits.

But the worst news is that we will not even have the consolation of German-quality public services, because so much of Brown's spending increases will be swallowed by pay rises (as in the recent firefighters' settlement) and useless job creation.

A Labour Government will never be brave enough to tackle the fundamental inefficiencies at the core of our public services. And Gordon Brown will not admit that, even after 60 tax rises, he cannot raise enough to pay for his overblown, vote-seeking spending plans.

The result will be rising deficits, a weakening economy and 30.7m disgruntled taxpayers.