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The tragedy of the pre-Budget report Samuel Brittan Financial Times 12/10/07 I feel sorry for anyone who has tried to make head or tail of the British government's fiscal plans from reading or listening to the statements made to the House of Commons by Alistair Darling, the new chancellor. It was the usual confusing mixture of propagandist figures, some year-on-year, others covering three years at a time, some in nominal terms and some in real terms, and the poor listener would have to work out for himself what they were changes in. I imagine the comparison was made with projections in earlier Treasury documents which did not previously have the status of firm policies. Let us move away from the partisan squabbling about who thought of the death duty concessions first. More important is what can we learn of the governments fiscal plans. It would be a cheap remark to say that it could have been written by Gordon Brown. The fact is that the Treasury had been so primed during Brown's tenure as Chancellor that any decent official could have written the latest statement standing on his head. The one solid fact to emerge was that public spending was expected to rise by an average of 2.1% p.a. during the next three years compared with some 4% expected in the previous period. Even that comparison has to be extracted from the small print of this and earlier documents. What I personally found most irritating was the iteration of point economic forecasts for years ahead as if they were firm facts. One advantage of having an economist or statistician as Chancellor would be not necessarily better policies but a knowledge of the limitations of the projections that are trotted out at budget time. Someone who paid £45 for the complete Pre Budget Report and Comprehensive Spending Review would only be a little wiser. The same would apply if he or she annoyed his colleagues by printing out the pages from the internet - let alone an almost equivalent number of pages in supporting documents. Where however is the tragedy? It is a tragedy for a few of the brightest people in the country who had a dream of a coherent approach to public spending. More than forty five years ago a few treasury officials, with support from a handful of academics, began to worry that the traditional annual parliamentary estimates, which originated in the agricultural crop cycle, were not appropriate to a modern economy. One result was the Plowden report by a semi independent mandar which urged the need for coherent forward spending projections. The torch was taken up by Otto Clarke, the father of Charles, the recent home secretary, who was innovative but authoritarian and disliked by some of the officials under him. He managed to persuade the outgoing Conservative Government to publish projections stretching several years ahead; and these were continued in more detail under Harold Wilson and James Callaghan. Later still, the torch was picked up by entirely different kind of Treasury official Leo Pliatzky, who led a personal crusade for what he called cash limits. The problem with the early projections was that they gave little idea of whether they could be afforded or not and what the implications were of any changes. It was however difficult to present cash figures for any reasonable period when inflation was around double digits and unpredictable. There was thus little alternative to using funny money - a concept with which I will not weary readers. Conservative Ministers did not take seriously the long term projections which were at the mercy of what Harold Macmillan called events. But because many programmes did not start to build up in their first year, they at least had to take year two with a semblance of seriousness. Labour ministers were happy to look further ahead in the hope that some items of social spending could be added on. The next stage was symbolised by the Armstrong Committee, chaired by a previous permanent head of the Treasury whose sittings covered the last few months of the Callaghan regime and the first few months of Margaret Thatcher. I was a member and although I had little expectation of it being accepted I was glad to sign the report as at least a statement of an ideal. Armstrong envisaged that every Autumn the Treasury would publish both expenditure projections and revenue ones on a comparable basis, ideally with costed options for tax and spending changes, which would be finalised by the Chancellor after a public debate the following Spring. The one solid result to emerge from Armstrong was the autumn statement - the earlier name of the pre-budget report - which outlined public spending plans over the whole range of public activity. But there was no direct comparison with revenue and few if any options for debate. Economic journalists would eagerly anticipate major policy announcements each autumn, only to be handed lists of numbers which neither they nor the cabinet could make much sense of, leaving the real action as before to the Spring budget. Norman Lamont, who was chancellor from 1990 to 1993, honestly wanted to put expenditure and revenue together in the autumn. As a result, certain traditional events such as the Mansion House dinner were, to some peoples annoyance, pushed back in to the Summer. The expenditure and revenue projections still came from different parts of the Treasury, were prepared on a different basis, and Norman Lamont's successors went back to the spring ritual. The period of low and stable inflation, inaugurated in the closing years of the Major government and continued in the Blair/Brown labour government, should have provided a golden opportunity for the full Armstrong approach. With inflation down to 2% or 3% it was possible to present expenditure in cash terms. Conservative chancellors preferred a rolling forward average, whereas Gordon Brown preferred to make spending decisions in three year blocks. But the simple comparisons of expenditure and revenue, which any golf club or tennis club would make, were still absent, let alone costed alternatives which chancellors of both main parties regarded as hostages to fortune. In some theoretical sense these expenditure and revenue decisions are the most important peacetime decisions made by any government. But in fact it is extremely difficult for the ordinary politician or even ordinary economist to envisage the difference between public expenditure as one or other proportion of GDP, or to find a rational way of deciding priorities other than the elbow power of different cabinet ministers and the supposed findings of opinion polls and focus groups. So after well over forty years of striving the document just published still has no simple comparison of expenditure and revenue. I looked hard in an effort to be fair but the nearest I could find was one table of managed expenditure and another of current receipts - the latter only going one year ahead to 2008-2009. But they are prepared on a different statistical basis and one compares them at one's peril. The vast majority of fiscal tables are in terms of various concepts of budget balance designed to show how well the UK is doing. So although both MPs and members of the public can get very excited about, say, the Health Service and to what extent it should make use of the private sector, any general debate on public expenditure is greeted with boredom and perhaps as an opportunity for MPs to show their constituents around the Palace of Westminster. I doubt if there is any country that has found an ideal method of either controlling public expenditure or allocating it among diverse vociferous claimants. But I can think of one country still far away from a rational approach despite the many midnight hours of technical expertise that have gone into the preparation of these documents.
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