Thursday, December 02, 2004
He knew he was right
Posted by David Smith at 03:11 PM
Category: Thoughts and responses

Two years ago in his pre-budget report Gordon Brown bit the bullet and admitted that he had got his borrowing forecasts badly wrong, revising them sharply higher. The result was the worst headlines in his time at the Treasury. Prudence had been abandoned and replaced by profligacy. Brown, as Michael Howard said at the time, became the "devalued" chancellor.

Having discovered then that honesty was not the best policy, Brown was determined not to repeat the trick this time. So far this year his current budget deficit has been 17 billion. By the the time we get to April, and the end of the fiscal year, that will have magically shrunk to 13 billion. It isn't impossible - the public finances could conceivably improve significantly in the next few months - but it isn't terribly likely either.

This is not just an academic argument. Brown needs that improvement to meet his golden rule, something he has insisted is inviolate. On his new forecasts, which have the deficit falling further to 9 billion next year, he has an 8 billion margin of error to meet it. Unless the figures improve quickly, that may have been used up by the time we get to the May election.

What would that mean? Taxes are not going to rise in a pre-election budget, and the chancellor insists they will not have to rise to meet his rule afterwards, so much so that to do so would be highly damaging politically for a man hoping to move quickly next door into 10 Downing Street. Those hoping for some illumination about how the Treasury intends to square this circle did not get it in the pre-budget report.

What they got, instead, was a bullish chancellor insisting that he is always right, and his critics always wrong. That may be true on growth, where Brown's forecast for 2005 - 3% to 3.5% - is again out of step with independent economists. It is not true of the public finances, where the Treasury has been consistently wrong over the past 2-3 years. 'He knew he was right' is probably one book our famously voracious reader of a chancellor has not read. It could yet, if the numbers do not turn his way soon, turn out to be his political epitaph.

From The Sunday Times/Times online December 2 2004

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