Sunday, December 10, 2006
Is Brown's garden rosy, or sprouting weeds?
Posted by David Smith at 11:00 AM
Category: David Smith's other articles

Sitting in the House of Commons watching Gordon Brown present his pre-budget report reminded me of what a formidable double act he and Tony Blair have been when on speaking terms. Blair’s lightness of touch complements the chancellor’s head-down approach.

That means Labour will be diminished when Blair goes, not because Brown will be a pushover, but because, more than he will ever acknowledge, he will miss Blair’s skills. Even with the prime minister alongside him last week, Brown managed to produce a pre-budget report that was variously characterised as dishonest, unimaginative, Stalinist and a missed opportunity. And that’s when most things in the garden are still pretty rosy.

Economists, accountants and lobbyists have spent the past few days picking holes in Brown’s numbers, uncovering new stealth taxes and expressing disappointment that he did not respond to their suggestions. That is how it should be. It is their job, and most of them do it well.

The green lobby said he wasn’t green enough. The CBI wanted him to signal that business taxes are too high. Soon after Brown sat down, Ireland’s finance minister, Brian Cowen, in his budget, was cutting the top rate of income tax. Brown went out of his way to explain why tax cuts were bad, the preserve of irresponsible Tories.

Brown had what should have been a good economic story to tell. It does not get much better for a chancellor than when the economy has just chalked up a record 57 successive quarters of growth — with our nearest major rival on under 20 — and is this year beating the Treasury’s own forecast.

Being up against him under these conditions, as shadow chancellor George Osborne was, should have been like facing Shane Warne on a turning wicket on the fifth day. But Osborne managed to get on the scoreboard.

One line of attack for the Tories — that Britain is growing more slowly than all but a tiny number of countries in Europe — was silly. Britain is growing more rapidly this year than Germany, France, Italy, and the average of the euro 12 countries and EU 25 countries.

But the shadow chancellor was right to point up disappointing productivity growth under Brown’s tenure. His claim that there has been an improvement is not supported by the official figures.

Even so, the economy remains Brown’s — and Labour’s — strongest card. Growth has not only been sustained but is less reliant on consumer spending than it was.

Over the period 2000-2004, more than four-fifths of growth was accounted for by consumers. This year and last it has dropped to just over half, which is where the Treasury expects it to stay. Business investment will contribute significantly to growth. Exports will no longer be a drag on the economy. If the present pattern persists, Britain will have a better balanced economy.

Inflation will soon be back to the 2% target. Previous budgets and pre-budget reports have put pressure on the Bank of England’s monetary policy committee to raise rates. This one did not, raising taxes modestly.

True, this enabled some newspapers to wheel out lurid headlines about a tax-raising budget and about “lurching” further into the red. It was not a lurch, but the public finances are worse than they were, and only made manageable by bringing forward the end of the economic cycle and assuming higher “trend” growth. As before, the return to budgetary health (when current revenues exceed spending) has been pushed further into the future.

Raising £1 billion from air-passenger duty, as well as indexing petrol duty, was the minimum he could get away with and claim to be green.

The black-hole warnings have come and gone. Brown has lost some North Sea revenue and been forced to accept increased public spending as a result of higher inflation. But he has made up most of the gap since the election with £6 billion of stealth taxes and modest green rises.

As things stand, he will leave the Treasury having chalked up 59 successive quarters of growth and without a crisis in the public finances, unlike most of his Labour predecessors. If you believe that the state of the economy shapes what voters do in the ballot box (which admittedly did not work for the Tories in 1997) it should mean that Brown the prime minister will find it hard to lose the next election.

That, of course, is when the best-laid plans — and the chancellor has lots of those — go wrong. Has the Treasury given us an economic forecast or just a dream scenario? Apart from our old friend the current-account deficit, predicted to widen from a record £32 billion this year to a record £40 billion in three years (it may get there sooner), everything that can go right does go right.

Taking the mid-point of the Treasury ranges, Britain grows by 3% next year and from then on at 2.75% — bang in line with the Treasury’s new estimate of trend growth. This is Goldilocks economics, neither too hot nor too cold, which has the effect of keeping inflation on target although, according to Treasury assumptions, does not prevent unemployment creeping higher.

Goldilocks is supported by a very strong world economy, which the Treasury thinks will slow only slightly from its powerful recent run; the best for more than 30 years. Instead of 4.75% or 5%, the prediction is for a still-strong 4.5% into the indefinite future. It looks too good to be true.

There is, to be fair, an acknowledgment of the risks. Oil prices have spiked twice and could do so again, which could then be a case of three spikes and you’re out. America could drag down the world economy. The reluctance of shoppers to spend in recent weeks may signal more fundamental weakness. Central banks could have to raise rates “further and faster” than markets expect.

But the mood is very bullish. The Treasury thinks China and India’s emergence means we could have entered a new era for the global economy. It thinks that businesses, sitting on healthy profits, could be on the brink of an investment boom well beyond the 6% rise over the past year.

Whether that is the pride that comes before a fall, we will see. There isn’t much room in Brown’s numbers for things to go wrong. But then, if they do, he will always be able to blame his chancellor.

PS: The green belt, like the late Queen Mother or warm beer, has long been thought of as one of Britain’s treasures. Anybody who suggested building on it risked accusations of crimes against nature.

So three cheers for Kate Barker, who in her final report on land-use planning for the Treasury suggested we should look again at whether the green belt should be sacrosanct. In a crowded country (her report covered just England), only an estimated 13.5% of land is developed and about half is protected. Some of that includes areas of outstanding natural beauty (15.6%) of England, which should always be protected. But the case for the green belt is weaker.

Its effect has been that development has been crammed into the edges of cities. Commuters have been forced to hop over the green belt to satellite towns miles away, at a net cost to the environment because of their longer journeys. The green belt, in other words, isn’t very green. And all this to protect, not beautiful countryside but ugly farm buildings and fields full of polytunnels.

I’m not suggesting concreting over every bit of open space from the outskirts of London to Sevenoaks or Guildford. But there is scope, as Barker says, for opening up the green belt to developments that make it more, not less, attractive, combined with measures to require developers to give people more access to the open spaces than now. Let’s hope her report does not gather dust.

From The Sunday Times, December 10 2006

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