So what the Dickens if Brown breaks golden rule?
sundayherald.com
Alf Young
AMONG the blizzard of reaction and analysis that followed Gordon Brown’s eighth Budget, one of many, many e-mails, from KPMG, the Big Four professional services firm, caught my eye.
It was headed: “Business poll gives thumbs down to Chancellor’s Budget”. KPMG had asked the polling organisation YouGov to test opinion at company director level to Brown’s latest package, as soon as he sat down.
YouGov tested the views of 326 directors in total. Of that rather modest sample, 57% decided this Budget was “neutral” for business. Another 7% thought it “positive” while 33% considered it “negative”.
From where I’m sitting that looks like a decidedly thumbs horizontal outcome. If, by a margin of two-to-one, this boardroom sample decides the Budget is, at worst, neutral for business, how can their reaction begin to be spun into a “thumbs down” message? Well, 84% of this same sample subscribes to the principal critique of Brown’s stewardship of the Treasury – that public expenditure will have to slow to avoid tax rises in future.
So when the Chancellor proclaims his intention to go on spending and denies any pressure to raise additional taxes, I suppose we can infer that they simply don’t believe him. In that rather elliptical sense, they may well be giving his Budget a decisive thumbs down.
It’s not a rejection based on any hard evidence. Rather it’s a judgement call that he can’t possibly pull this one off. Brown’s already had the last laugh on other fronts – on inflation and the conduct of monetary policy, on the resilience of our labour markets, and on the path of UK growth in the wake of the global economic downturn and the impact of 9/11.
However, during that downturn and the consequential fall in tax revenues, he’s had to revise borrowing estimates sharply upwards – by £10.2 billion for 2003/04, for instance, between the last Budget and this one – in order to finance Labour’s spending commitments.
How can he hope to engineer the kind of recovery in tax revenues his red book envisages (£31.2bn more in net taxes and social security contributions by April 2005)? It simply won’t happen, say critics. His golden fiscal rule – the one that insists this government will only borrow to invest over the economic cycle – is in jeopardy. He’ll have to raise £13bn in new taxes, claims the Institute for Fiscal Studies (IFS), if he’s to balance the nation’s books by 2006, when this cycle is expected to end.
The Tories, left “deeply dispirited” and looking like “Labour-lite” by this Budget, according to The Daily Telegraph, insist such tax rises are “inevitable”. A hapless Oliver Letwin cites the IFS as his guarantor for such a claim.
But the IFS’s director Robert Chote is much more circumspect. “There are enormous uncertainties in the forecasts,” he says. “The Treasury could be right or we could be right, but by keeping his fingers crossed rather than taking action to restore his margin for error, the Chancellor perhaps risks undermining the credibility of the fiscal rules in which he has invested so much.”
Let’s suppose Brown does indeed fail to meet his own self-imposed golden rule by the odd billion or two. There is no stopwatch process that will reveal, in real time, like an overweight boxer or jockey climbing onto the scales, that the Chancellor has finally blown it.
There is enough latitude – in the way the calculation is done or the precise start and end dates of the cycle – into which interpretive confusion can be sown. And, crucially, by the time we get confirmation of that “fact”, the next election will have come and gone.
This Budget has boxed the Tory Party into a presentational night mare – valiantly trying to match Labour’s spending plans on health and education while appearing prepared to take an axe to defence, transport and policing, budgets they once professed to cherish.
This Budget has ruthlessly raided all Oliver Letwin’s plans to crack down on Whitehall waste and inefficiency. As the Telegraph again observes “Even the Conservative charge that a third Labour term will inevitably mean tax rises somehow lacks purchase.”
Indeed. And if the strategy Gordon Brown laid out, with all the subtlety of a steamroller driver on Wednesday, does the electoral trick, will a few minor dents in his golden rule really matter? There are signs, in the latest February figures, that some tax revenues are already recovering more strongly than anticipated. But even if they don’t grow as fast as the Treasury is forecasting and the golden rule is marginally breached, would the big wide world be any the wiser?
How would a golden rule missed by a fraction of one percent of national income stack up, in the public mind, against the present travails of the world’s third largest oil company, Shell, which has just had to cut its estimates of how much oil it thinks it has in the ground for the second time in three months? How would it stack up, against Standard Life, Europe’s largest mutual life office, telling more and more with-profits policy holders that their investments will not pay off their outstanding mortgage debts?
Failure to deliver on his golden rule would certainly weigh heavily on this Chancellor, who cares deeply about how he will be judged by history. But would it stack up against the grisly aftermath of the Lawson boom or that extraordinary day when Norman Lamont sent interest rates hurtling skywards before dragging a battered pound out of the ERM?
Somehow I suspect that Brown’s claim to be the best British Chancellor since Gladstone will endure, golden rule or no golden rule.
21 March 2004
==========================================================
/edit: Well, I'm no company director, but I still think he is a dickhead for selling the countries gold. Generally speaking, this country is in a deep mire so any comparison to Gladstone is just simply ridiculous. We don't have any politicians worth more then crap as far as I can see. They are too numerous and a farking disaster at everything they do. pb |
