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Benefits of uninteresting times Samuel Brittan Financial Times 24/03/06 The Budget that Gordon Brown presented on Wednesday was his 10th since taking office in 1997. It was foreshadowed by much media gossip on whether it would be his last before he takes over from Tony Blair, who has said that he will not go on as prime minister in the next parliament. Mr Brown’s statement shed little light on this. It did underline, however, the absurdly archaic nature of this annual British ritual. Most Budgets, whether in the public or private sector, announce spending plans together with an estimate of the revenues to finance them. The UK has, however, sensibly moved towards three-year spending programmes. The next such review is due in 2007 to cover expenditure in the three years from 2008. The chancellor called for a wide-ranging national debate on its content. This is a good idea, but it will be immensely difficult to persuade contributors to examine the trade-offs realistically and not simply recommend more for their own particular interest or hobby horse. In the circumstances, all that Mr Brown could do this year was to announce small adjustments on both the expenditure and the revenue side. They represent a small fiscal loosening in the coming financial year and a tightening in the two subsequent years. But the orders of magnitude involved are much less than 0.1 per cent of gross national product. The tightening in future years is expected to come mainly from yet another blitz on tax evasion. The chancellor spent his time on a selective tour of the British economy and public finances. But to some listeners it was difficult to make head nor tail of a vast battery of figures without any explanation of whether they were in nominal or real terms or whether they were annual magnitudes or covered a period of years, or whether expenditure announcements represented “new money” or not. What did stand out was the contrast between the very great emphasis on education – which marked a return to Mr Blair’s themes in the 1997 election – and the almost complete silence on health and pensions. The government has still to ascertain why an enormous increase in health expenditure has been accompanied by a great increase in health authority deficits and the closure of patient facilities. The cabinet is clearly still divided about what to do on pensions and, in any case, there is no need to tie announcements on this very long-term issue to the annual crop cycle on which the spring budget was originally based. Many commentators found the Budget dull in terms of headline economic announcements. But this is a good sign. Would they rather have had announcements of measures such as the £50 travel allowance introduced by the Labour government of the 1960s or the packages of foreign central bank credits to support the pound which Denis Healey produced in the 1970s? Or, alternatively, would they have liked large tax cuts which the government could not afford? We can never remember sufficiently the Chinese curse: “May you live in interesting times.” The main line of criticism from David Cameron, the new Conservative leader, related to the high level of expected government borrowing. But this will really not stand up to too much examination. Government net borrowing in the UK is less than that of all the other members of the Group of Seven major industrial countries. So is the ratio of net debt to gross domestic product. Fiscal policies should not, however, be a competitive contest. There is an excess of intended saving in the world economy due to the very high savings propensities of countries such as China. These far exceed perceived investment opportunities. The world has avoided a Keynesian slump for two reasons. One is the fall to near zero in world real long-term interest rates. The other is the Budget deficits of the main developed countries. This may not be the best kind of equilibrium in the world economy; but it is, as Harvard’s Richard Cooper keeps reminding us, a good deal better than a global recession. But to return to more parochial matters. The Labour government started in 1997 with a fierce squeeze on public spending, followed by a few years of rapid growth. Its projections show a sharp slowdown this year and a further slowdown to below 2 per cent a year after 2008. The tax to GDP ratio is intended by the government to level off next year at a near-peak of nearly 39 per cent. The question is: can the demand from public services be met from the once-for-all jump in the first half of this decade; or is something more radical required? One does not hear as much as one used to at middle-class dinner parties the view that people would happily pay more tax in return for better public services. The choice, then, is between returning public services to their former straitjacket or breaching the sacred principle of no charges at the point of entry. No amount of efficiency audits by well-meaning businessmen or accountants appointed either by government or opposition will rid us of this dilemma.
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