Wednesday, December 06, 2006
Economy under control, Brown's in control
Posted by David Smith at 03:30 PM
Category: Thoughts and responses

From The Times online website:

You can argue about whether Gordon Brown's pre-budget report was green enough, or whether his claim to raise state school capital spending to independent sector levels would merit a pass grade in GCSE Maths, but in the end only one thing mattered. The economy is doing fine, and as long as it is this chancellor is pretty unassailable.

There were no surprises in the numbers - growth of 2.75 per cent this year (up from 2 per cent to 2.5 per cent in the March budget), rising to between 2.75 per cent and 3.25 per cent in 2007. The public finances are not in significantly worse shape than they were, with net borrowing estimated at just under 37 billion this year, compared with a 36 billion prediction at the time of the budget, falling to 31 billion (30 billion) in 2007-8.

For economists, the big story was that the Treasury thinks the present cycle will come to an end during the current fiscal year, 2006-7, and that the golden rule (only borrowing to finance investment) is met, admittedly by a small margin, over that cycle. The Treasury believes that the rule will be more comfortably met over the next cycle. Government debt is projected to stay under 40 per cent of gross domestic product. "Trend" growth, which was previously expected to slow to 2.5 per cent, is kept at 2.75 per cent, effectively an upward revision, thanks to all those migrant workers.

There's another change, which is of some political importance. Thanks to revisions of the size of the economy, the tax burden is no longer expected to reach the peak levels of a quarter of a century ago. The Treasury now sees a peak of 38.1 per cent of GDP, compared with an all-time high of 38.8 per cent. No longer will the Tories be able to accuse Brown of presiding over a record tax burden.

Overall, the impression Brown conveyed on the economy was one of confidence and competence. Above-target inflation, which the Treasury sees as entirely the product of higher food and energy bills, will have passed by next summer. There's no suggestion here that the Bank of England will need to raise interest rates again to achieve that.

The pre-budget report also set out clearly the political dividing lines. I had always thought it unlikely that Brown would whip out tax cuts as a parting shot and this confirmed it. He drew the distinction between his strategy of fully-funding the public services - though with growth slowing to under 2 per cent a year from 2008 onwards - with the Tories' "third fiscal rule" of sharing the proceeds of growth between public spending and tax cuts. He'd pull the rug from under his own political strategy by cutting taxes, so won't do it.

How can the Tories get through Brown's formidable armour? Not, I'd suggest by trying to pick holes in the economic numbers - that's strictly for the nerds. They have to present him as obsessed with state solutions to Britain's long-term economic problems, and of only belatedly waking up to the environment and long-run shortcomings on skills, transport, planning and housing. As a result of this statement, he is a harder target.

Comments

I am aware that the current so called conservatives are not in a position to attack brown, but surely he is an easy target on a number of issue.

His "data" fixing, all targets, dates etc are amended to fit his requirements.

Inflation - the target now used allows him to hide true inflation (nearly all tax linked) and monetary growth.

His golden rule is always met by changing the dates of his economic cycles.

The economy as been restated to show that he isn't extorting quite so much in tax (in proportional terms not actual)

He classes spending as investment to enable larger borrowing

He destroyed the pension system by withdrawing tax allowances, and rubbed salt into teh wounds by forcing funds to cover goverment debt by buying "safe" goverment bonds - lowering returns to imnvestments

He even gets away with comparing us with the weakest part of the worlds economy and gloating that we are doing better than europe, never mentiosnthe US, China, India, the Anglosphere who have all done bettre than teh Uk

He doesn't deserve the plaudits he gets as one of our better chancelors, I will admit he his better than most of his labour collegues would be, but that is faint praise

Posted by: steves at December 7, 2006 10:54 AM

Browns in control

Mr Brown has added an entirely new dimension to the concept of"moving the goal posts" The flipside of his narcistic greatness will be overshadowed by the proverbial " with the trousers down" deluge that is coming. Its great writing the rules, it might be reasonable to change them somewhat as you go, but not keeping the rules you have made yourself, may well portray you as infantile and naive.

Best wishes
Arik Schickendantz

Posted by: Arik Schickendantz at December 8, 2006 12:08 PM

Steves,

You forgot to mention that under Gordon Brown, the debt burden has doubled in less that 8 years oh and he sold UKs gold reserves at one of its lowest points.

Posted by: Kev M at December 8, 2006 04:05 PM
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