Wednesday, March 22, 2006
Tinkering his way into history
Posted by David Smith at 04:00 PM
Category: Thoughts and responses

From Times online - some initial budget thoughts.

Now we know the real reason why there was such a marked absence of pre-budget leaks this year. There wasn’t much worth leaking. But the budget did tell us something interesting about Gordon Brown.

At the start of his speech Brown paid tribute to the only previous chancellor to have delivered 10 budgets in a row. Vansittart, chancellor from 1812 to 1822, abolished income tax, Brown told us.

The history books tell a rather different story. Vansittart did not want to abolish income tax but was forced to do so by the House of Commons. Brown’s 10th budget tells us, more than anything else, that when it comes to lower taxes he too will have to be dragged into it against his will.

Every time Brown has been faced with a fork in the road between reducing tax and raising spending, he has opted for the latter. That is why the non-North Sea tax burden is the highest in our history, and the overall burden the highest since 1984.

There was never a realistic prospect of lower taxes in this budget. Brown has met his fiscal rules by the skin of his teeth, and may yet break them. To cut taxes after the embarrassing revisions in December’s pre-budget report would have been the height of chutzpah. Even Brown did not have quite that much.

The economic content of the budget was minimal, as expected. The growth forecasts – 2% to 2.5% this year, 2.75% to 3.25% next – were unchanged. The Treasury, unsurprisingly, believes inflation will meet the 2% target in perpetuity.

At the margin, the economy is less healthy than the chancellor expected only three months ago. Then, Brown predicted that business investment would rise by between 3% and 3.5% this year, now it is 1% to 1.5%. Then he predicted a £30 billion current account deficit this year, now it is £32.75 billion.

But it would be wrong to look at the story of this budget in terms of the big numbers. A “giveaway” or tax hike of under £2 billion represents a more or less neutral budget. In this respect, Brown’s 10th was neutral in the extreme.

For 2006-7 there is a “giveaway” of just £380m, largely explained by a £270m increase in direct payments to schools and the £275m cost of not indexing petrol and diesel duties until September (and probably not then). That giveaway is clawed back in 2007-8, with a fiscal tightening of £415m, and further in 2008-9, £705m.

There was, it should be said, some content in what Brown said on public spending. The Home Office, surprisingly, has agreed to a three-year freeze in real-terms spending from 2008, an unusually early concession by Charles Clarke. Other departments have gone further, Her Majesty’s Revenue & Customs, the Treasury, the Department of Work & Pensions and the Cabinet Office, have “agreed “ to 5% real cuts in spending over the 2008-11 period. Brown is bequeathing to his Treasury successor a shrinking budget.

All this is to make room for Brown’s big idea – raising state school spending per pupil, currently £5,000, to the average enjoyed by private school pupils, £8,000. This is the equivalent of Tony Blair’s historic pledge to raise NHS spending to the European Union average. No timescale, however, is being set, probably with good reason. This looks like a target that will never be achieved.

When you get a dull budget, people concentrate on other things. The news that Professor David Blanchflower will replace Professor Steve Nickell on the Bank of England’s monetary policy committee has answered the critics who feared that an intellectual lightweight was going to be appointed. It replaces one labour market specialist with another. The markets will be furiously trying to work out whether he is a hawk or a dove.

Comments

Brown's "big idea" is nothing of the sort. Its purpose is just to make him look virtuous and look as though he has a 'mission' whilst deflecting criticism.

Like so many New Labour promises it has no substance. He talks about raising state school spending to the CURRENT average of independent schools, with no timescale mentioned. This will happen automatically just through inflation and does not necessarily imply any 'catching up' with the independent sector. Who is to say what independent school spending will be when state school spending per pupil reaches £8000?

If the state were to spend the same as the independent sector, then what exactly is the objection to the state funding all pupils to go to independent schools, especially as it is clear that independent schools get better results?

Posted by: HJHJ at March 23, 2006 04:15 PM
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