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Gordon Brown’s pre-Budget report on Wednesday was not just his last, but the last of its kind. The chancellor will almost certainly be prime minister by this time next year. In the remote possibility that someone else were to succeed Tony Blair, the Treasury would lose Mr Brown. The next premier, we can be sure, will have no cause to allow an incoming chancellor the opportunity to behave as master and micro-manager of all he surveys.
Behind the blizzard of reports and initiatives that have become the hallmark of Mr Brown’s set-pieces, the underlying questions remain those for any chancellor: the economic outlook and the strength of the public finances. The piquant element in Wednesday’s performance is that it signalled how an administration formally led by Mr Brown would operate in practice.
The economic outlook is more benign than last year, when Mr Brown was forced to admit that growth had slipped since his Budget forecast. This time, strong 2006 growth of 2.75 per cent has exceeded the Treasury’s earlier prediction and rapid immigration has allowed Mr Brown to raise his long-term growth forecast to 2.75 per cent as well. One risk to Treasury forecasts is that the wave of immigration turns out to be a one-off, the result of the European Union’s expansion to the east, and that it tails off in the years to come.
Mr Brown is trusting to luck again in his forecasts for next year. He still expects a rise in output between 2.75 per cent and 3.25 per cent. This is ahead of independent forecasts and implies that growth will probably accelerate next year. This outcome is possible, though the risks – from a US slowdown or stagnation in UK consumer spending – are considerable.
The fiscal position is less impressive. Mr Brown can still claim to be meeting his self-imposed rules to borrow only to invest over the economic cycle and to keep the national debt below 40 per cent of gross domestic product. But he resembles someone trying to get into a suit he ordered 10 years ago. No matter how much he breathes in, and no matter what his tailor does to flatter his figure, the fact that it is a tight squeeze is definitely showing.
To try to make the budgetary suit fit, the Treasury has once again redefined the economic cycle, so that the borrowing target is easier to hit. Such tactics reinforce the case for an independent body to judge whether the public finances are in balance.
The pressure on government finances stems primarily from public spending. Inflation is increasing the cost of benefits, such as pensions, that are linked to prices. This means there is little room for manoeuvre; for forecasting errors; or for tax cuts. Higher spending is heavily dependent on hard-to-achieve efficiency gains elsewhere in government. Despite raising taxes by £2bn a year, the government will still have to borrow more than it expected for the rest of the decade.
Given the fiscal pressures, Mr Brown’s approach to green taxes is notable on two scores. First, there was no tax reduction to take account of his increase in airport passenger duty, which is set to raise an extra £1bn a year. This leaves him vulnerable to the charge that he views green taxes as a way of increasing revenue rather than reducing pollution.
Second, and crucially, he decided not to raise fuel duties except in line with inflation. Re-introducing the fuel duty escalator, which used to put up the duty on petrol by 6 per cent above inflation, would have locked the government into a course that left no flexibility in the face of sharp fluctuations in energy prices. But that did not preclude an above-inflation increase on this occasion. Mr Brown’s rejection of this course owes much to the scars inflicted by the fuel duty protests of 2000. Balancing green credentials without being tarred as the motorists’ enemy is a political trick no one has yet pulled off.
Wednesday was not a blueprint for a Brown premiership. The results next year of the comprehensive spending review will be more influential in setting the direction for a Brown administration. It did, however, bring two aspects into focus.
The first is the importance he would attach to education. Given increasing global competition, Mr Brown is right to see improving the skills of the British workforce as a central issue. The prospects for unskilled workers have already reduced and will diminish further, creating a train of associated difficulties. It is fair for the chancellor to highlight his long-term commitment to raising capital spending on education. But his past record of presenting figures in an implausibly favourable light justifies some scepticism at the headline totals recited on Wednesday.
The second feature relates to style. As chancellor, Mr Brown has displayed a belief that everything is his business. While he nods in the direction of the voluntary sector, no issue is too small or too personal to escape government involvement. Trying this hard to influence people is no way to win friends, particularly when the government’s record on intervention is patchy.
Mr Brown has often been talked of as chief executive of UK plc to Mr Blair’s chairman. That analogy now understates his position as prime minister-in-waiting. Successfully combining both roles in the absence of Mr Blair will demand a greater readiness to delegate to ministerial colleagues. Perhaps individuals might be trusted to make more of their own decisions as well.
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