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| The Times, Gary Duncan, 9 December 2005 |
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| 'One factor is the quite sharp rise in the ratio of taxes to household disposable income...It's not surprising that households spent less' |
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| Mervyn King, November 16. |
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| GORDON BROWN hit back at the Bank of England's Governor over his recent assertion that much of the blame for this year's consumer-driven downturn in the economy was because of a rising tax burden (Gary Duncan writes). |
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| The Chancellor insisted to MPs yesterday that far from higher tax bills being behind the consumer slowdown, the driving force must have come from the Bank's own increases in interest rates in the past year. |
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| In November the Governor, Mervyn King, said that a rising tax take along with higher costs for "boring items" such as utility bills had taken money from people's pockets and left them less to spend. |
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| "One factor is the quite sharp rise in the ratio of taxes to household disposable income," Mr King said. "That ratio has gone up by almost two percentage points in the past two years (and) has contributed to the sharp slowing in real household disposable incomes in the second half of 2004. It's not surprising, therefore, that with that slowing, households spent less." |
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| But after the Treasury's most senior economic official dismissed that analysis on Wednesday, the Chancellor said that Mr King should rethink his assessment. |
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| Mr Brown told the Commons Treasury Select Committee: "I actually think the Governor, on reflection, would probably talk about the rise in interest rates. I do not think anybody should be in any doubt that four rises in interest rates (last year) was bound to be the major factor in affecting consumer demand in the economy." |
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| The comments came as Mr Brown defended his forecasting record after he was forced this week to downgrade his prediction for this year's economic growth from 3-to-3.5 per cent to only 1.75 per cent. |
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| The Chancellor rejected demands from Conservative committee members for an apology for the error. He said that as well as higher rates, which had been needed to slow house prices rises, the economy also had to weather soaring oil prices. |
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| "I do say that one has got to look at all the factors here," Mr Brown said. "In any other decade these two factors coming together would have brought the British economy into recession." |
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| In heated exchanges with David Ruffley, a Tory committee member, the Chancellor rejected accusations that his decision to extend further the economic cycle used to measure his "golden rule" had "fudged" the true state of the public finances. |
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| Mr Ruffley said: "If you stuck to the original dates, you would have broken the golden rule. It is not an economic cycle, it is a spin cycle." Mr Brown said that his decision had been found to be "reasonable" by the National Audit Office. "The idea that this is anything other than an objective examination of the evidence seems to me to be perverse," he added. |
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| Mr Brown also rejected Tory and Liberal Democrat MPs' calls for an independent body to scrutinise his fiscal plans. |
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| "I do not think anybody should be in any doubt that four rises in interest rates was bound to be the major factor in affecting consumer demand" - Gordon Brown, December 8. |
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