Martin Wolf, Philip Stephens and Nick Timmins talk to Rob Minto about the 2007 Budget, and examine Gordon Brown’s 10 years as chancellor
Rob Minto: Welcome to the Financial Times round table discussion about the 2007 budget. I’m Rob Minto, interactive editor of FT.com. With me is Martin Wolf, chief economics commentator of the Financial Times, Philip Stephens, our Chief Political Commentator, and Nick Timmins, the public policy editor. Martin, if I could start with you? The 2007 budget is, it is assumed, Gordon Brown’s last. This Budget is often seen as his legacy to himself, potentially as prime minister. How are his finances looking and what room for manoeuvre will he have as prime minister do you think?
Martin Wolf: I think the picture as I see it now is that he probably doesn’t have to raise taxes in order to meet his fiscal rules on the spending trajectory that was notionally indicated in the pre-Budget report and in previous documents. The tightest constraint upon him is probably his debt ceiling. He’s fairly close to his 40 per cent net debt ceiling, so he can’t use much of his room for borrowing for capital purposes, which might turn out to be a problem because it’s one of the things they have done in the past. But my general view is that he doesn’t have much manoeuvre to increase the deficits really at all. On the other hand, he doesn’t have to raise taxes to close them. So in essence, the fiscal decisions he makes now and probably for the foreseeable future have to be close to neutral. That is to say if he decides to increase spending at a faster rate than was previously indicated he’ll have to raise taxes and if he doesn’t, he doesn’t.
RM: What room for manoeuvre does that leave his successor do you think?
MW: Well, essentially his successor will be bound by this particular straightjacket. How much freedom of manoeuvre his successor is really going to have is going to depend on whether the prime minister, assuming it’s Gordon Brown, allows him to have any freedom of manoeuvre at all. I think that’s going to be the question more than his fiscal room. But essentially on the fiscal side I think, as I’ve indicated, the government now has essentially has no slack. It’s not tightly constrained in the sense that it must raise taxes to meet the likely fiscal spending commitments, but if it does go in for more, significantly more, fiscal public spending or wishes to cut taxes significantly somewhere he’s going to have to raise revenue elsewhere. It’s as simple as that. It’s just he doesn’t have any slack in the system and that’s the position the successor will find himself in.
RM: Well, I’ll come back to some of the fiscal angles and public spending in a minute. But, Philip Stephens, I’d like to bring you in. The Budget is often seen as Gordon Brown’s chance to, if you like, present himself to the electorate as a viable prime minister. How political is the 2007 budget going to be?
Philip Stephens: Well, Gordon Brown has always treated the Budget as political theatre. The days have long passed when chancellors stood at the dispatch box and offered a sort of dry, objective view of the economy, and the more so with Gordon Brown and this is his 11th Budget. One way or another it’s his last Budget, so we can be pretty sure that he’ll want to make a political splash. And indeed, if one sort of lurks in the corridors of Whitehall and the Treasury at the moment there’s lots of sort of murmurs about, you know, big changes here, big changes there. We’ll see. But I think the politics of this also lie in the fact that Brown is a man for whom dividing the lines count very much in politics and what he’ll want to do in this Budget is draw very clearly the dividing lines between the Brown premiership and David Cameron’s Conservatives, and he’ll do that, I think, in the public spending review. Now, as Martin said, he hasn’t got that much room for manoeuvre himself, but what he’ll do I think is to set targets for things like health and education, other spending, and then say to Cameron, I dare you to say that you will cut or cut back these pledges in order to reduce taxes, as the Conservatives pledge to do over time. So I think for Gordon Brown it’s the battleground, the economic battleground for the election and his chance, if you like, to choose what ground the election will be fought on.
RM: You say that he’s always used the Budget for political grand standing rather than sort of dry, economic analysis. Do you think Mr Brown has over-politicised the Budget?
PS: I think absolutely he has. I mean, there were days not that long ago, before this government came to power, when you could pick up the documents that accompanied the Budget and expect a fairly, sort of civil, service, objective analysis of what was happening in the economy. I think a lot of it has been politicised. The strange thing is though, looking back over all these Budgets, with the exception of two; the first one where he made some big shifts in taxation and spending and then one after the 2001 election when he announced he was raising National Insurance to fund a big increase in the health service, actually most of the others weren’t that memorable. They felt important at the time, but he’s a chancellor of smoke and mirrors and the grand gesture. You know, I find it quite difficult and I checked with some colleagues, you know, who remembers what was in the 2003 Budget or the 2004 Budget, even the 2006 Budget?
RM: Nick Timmins, do you remember any of the Budgets having anything memorable in them?
Nick Timmins: Only the 2001 one because that was the big spending one. It was the moment the brakes came off after the first term and public spending was increased quite rapidly. The interesting thing about this Budget is technically it’s only a budget, but it’s collided with this year’s comprehensive spending review, which will set the spending limits up to 2011. And already, despite the fact in theory the review is not finished till the summer, we’ve had a bunch of announcements about the Home Office and other departments, and I suspect there will be an announcement in this one as well. He might well do education spending I think and that will in a sense define the envelope for spending for the rest of this parliament.
RM: Do you think the government has much to show for the money that Gordon Brown spent in previous Budgets?
NT: I think it’s a mixed picture. It depends where you look. I mean, you can look at some of the things he’s invested in, like the new deals and the workplace work programmes which have clearly worked and have an impact. The strange thing there is that they haven’t done more of them given their effects, and we recently had an announcement with Brown clearly on size saying there will be a lot more workplace work reform in future years. If you look at some of the things they care most about, like equality, they’ve put an awful lot of money into tax credits and various other measures to try and tackle inequality and child poverty. The intriguing thing there is that all they’ve managed to do is stop the gap widening despite a lot of genuine effort, which I think is probably slightly depressing in the longer term if you’re a Labour politician in the sense that you put in a lot of effort and rather than reduce inequality all you managed to do is hold it steady.
On things like education a lot of money has gone in. Schools look and feel better, but it’s clear that some of the bottom line educational problems are pretty intractable and there’s been a level of improvement and then a sort of plateau. On health it’s clear the health service has got a lot better. It’s equally clear it hasn’t got as much better as the amount of extra money has gone up. A lot has gone into pay and the big question there really is, is the National Health Service like a sort of giant tanker? You pour money in and alter the cause and nothing much happens for a few years, and we will in fact see the benefits from this higher spending in three or four years time. You can make a case for that because in previous periods the health service has been very squeezed, but carried on treating all patients. It may just take a long time to respond, but it’s certainly clear it has not responded as well at this stage as clearly people hoped it would.
RM: You mentioned education. Obviously one of Labour’s main election pledges back in 1997 was education, education. Do you think Gordon Brown is going to try and deliver more on education?
NT: Yes, and one of the interesting things in the past few months has been the way that Gordon Brown himself has adopted education, education, education as his key area of interest and, you know, I haven’t heard the chancellor talk about health at all. He’s talked about education, so I think that will be a central part of his premiership.
RM: Now, recently in the news there’s been a lot about green taxes, a lot about carbon trading, and offsets and so forth. How green will this Budget be and maybe I can bring Martin in on that one?
MW: I honestly don’t know. I would assume there will be a number of splashy initiatives in this area. Gordon Brown’s speech earlier this week has already indicated a number of his plans which are not very classically of Gordon Brown, namely a large number, a very large number of rather specific initiatives, a lot of them requiring regulatory changes. I don’t know whether we’re going to see anything splashier in the Budget. My own very strong impression is that Gordon Brown doesn’t really know quite what to do with this climate change agenda and how to approach it, but he is aware that it’s an important area of policy on which Cameron has been making a lot of noise, so he has to do something that looks good. But I’m reasonably sure that for him personally this is not the highest priority and he would not wish to sacrifice other important goals in terms of economic growth, poverty alleviation and, you know, income distribution questions associated with that, education and health, for the green agenda however sexy it has now become.
RM: Well, is it then, Philip Stephens, just a political point-scoring issue? He talked about, in the pre-Budget report, carbon zero homes. I presume he meant carbon neutral, but we’ll see. Will his green initiatives be essentially a way to try and steal back some of the green clothes from David Cameron?
PS: Yes, I think it really will be political window-dressing as far as Gordon Brown is concerned and I think we’ll have carbon neutral homes perhaps in 2020, perhaps that’ll be moved out to 2030. I mean, these tend to be moving targets. It’s been very clear I think that Gordon Brown is uncomfortable with this agenda, partly because it’s not his own. Gordon Brown doesn’t like things that aren’t invented here, as it were, and the fact that the young David Miliband, the sort of young cabinet star, potential rival people say for Gordon Brown’s crown is the minister who has been running with the green agenda I think it makes it even more painful politically for Gordon Brown. I think the other point here, and this is what privately people in Whitehall will tell you, is that Gordon Brown has seen “green taxes” as essentially a way to raise money. He, you know, has used various devices; landfill taxes, others. They’re basically stealth taxes and he’s found it very convenient in the last few years to sort of put a little green badge on what essentially are normal tax increases. Now it’s out in the open he’s going to find that a bit harder. I think he’s discomforted by that. He knows now that if he raises green taxes people, including David Cameron, are going to be saying, okay, where are the corresponding cuts in other taxes? So I don’t think this is comfortable ground for Gordon Brown at all.
RM: Do you think Mr Brown has a sort of presentation problem with the electorate?
PS: Well, Gordon Brown has clear political strengths. This is a serious politician, someone who’s been in government for a long time and, you know, it must be said, has delivered, if politicians indeed do deliver, a stable economy for a decade. So people can look at Gordon Brown and say, look, here’s a serious, solid politician. They don’t look at Gordon Brown and say, this is the sort of person I’d like to have round for dinner tomorrow evening or, basically to spend the weekend with. So, personally he’s not an attractive politician. He’s not at ease with people. David Cameron has many of the sort of personal qualities and strengths that Tony Blair has. You know, he’s a politician at ease with himself and at ease with most audiences. Equally he doesn’t have any track record to speak of in policy. So, if you like, we have the sort of solid, stable politician we know against a more attractive, younger, I’m the future, Tory politician who yeah, but we’re not quite sure about, you know, where the substance is. So an interesting battle.
RM: Martin, I can’t remember if it was last year’s Budget or the year before, but you likened Gordon Brown’s spending plans or targets as a Soviet tractor factory. Do you still stand by that?
MW: Philip talked about the political theatre of Gordon Brown’s Budgets and I agree with him fully. Having commented on all of them, indeed I’ve commented on Budgets now for 20 years, there is a certain characteristic of Gordon Brown’s Budgets which, with very few exceptions, are extraordinarily unmemorable and at the time consist of the staccato repetition of a long series of facts about the economy and an immensely long series of very specific proposals, many of them of a quantitative kind for the economy, for spending, for taxes and so forth. This was very much what I was referring to when I referred to it like listening to a Soviet commissar reporting the success of the tractor plans in the Soviet Union. In this particular case, namely the Budget last year, the most remarkable feature was the planning for manpower, skilled and unskilled manpower, over the next 20 years.
If I remember correctly it was sort of very remarkable. You’re seeing exactly the same thing with the green agenda. The characteristic of Brown as a policymaker in many of the areas that he turns his attention to, it’s not universal and he has other ways of doing things, but it’s a very obvious characteristic. He sees a problem and then an issue. He tries to devise a framework for dealing with it, which often has strong quantitative elements and then a whole series of targets and delivery mechanisms to be operated on throughout the government. I think it’s essentially a planning view of the world. I think he essentially sees the world as a planner. It’s his instinct and I think by and large it’s not very workable. For this reason I’m less persuaded than Nick, who follows this more closely than I do, that what is really going on when you start looking at the details in education and health particularly actually necessarily leads to any significant improvement.
PS: One additional thought just to add to what Martin said. Here’s the real political divide between Brown and Cameron; Brown is a politician who thinks by and large government can come up with solutions to most problems and that with some there is a quantitative interventionist answer to most of society’s ills. Cameron, though not of the right, not of the conservative right, not of the sort of ultra-liberal right, essentially believes that you have to let people get on with it by and large themselves and if the state has to intervene it should really be alongside civil society, other groups in society, the voluntary sector, private enterprises as well, and there I think we’ll see the big political divide in the next two or three years.
RM: Nick, did you think Martin’s answer was fair?
NT: In many ways, yes. I mean, one of the tensions that’s been between Blair and Brown, and we’ll be watching like hawks assuming Brown becomes prime minister, is what mechanisms he uses for public sector reform. In a sense the argument has been between a Treasury that has come up with public service agreements, set departments’ targets, so you will do this, and there have been some gains from that. It’s not been all negative, but there is a big downside to setting targets which the Treasury has come to recognise, like the rest of government, which is you disempower people, they look up solutions, they don’t try to find them themselves. So you see the Blair right end experimenting with market-like mechanisms for reform in the public sector; choice, competition, introduction of all that, and the big question is, how much of that does Gordon really believe in? How much does the Treasury currently believe in, and how much of that will move across with him into Number 10 if he gets there? And it’s extremely hard to judge. If you read his public pronouncements you can read them both ways. You can read sections where he appears to be in favour of it, sections where he appears to be against.
My own feeling is that his gut is somewhat against it, but his head may well triumph on the grounds that they’ve tried direct management and market control. They’ve tried targets and it’s produced very limited results, and that therefore his head will rule his heart and we will still see some of this happening, but possibly the less gusto than we’ve seen it under Blair.
MW: I think one of the great ironies of the Brown chancellorship, I won’t try to assess the thing as a whole, is that I would say he’s done better at managing the economy than he has, he or the government and he’s obviously played a huge role in it, has done at managing the public sector which is under their control. I think the reason in some sense is because the economy is not under their control and most of it, though not all, there are some things he does care about, like education and particularly training, which I think is a fair mess, but most of the economy what he wanted to do was to make sure it just ran in a reasonably stable way, delivered well, delivered taxes which they could then spend on the things they thought were important.
The crucial things they decided were all right at the beginning about the Bank of England independence, which we haven’t mentioned which is of course pivotal, the fiscal rules which by and large they kept to, and otherwise they’re leaving the tax system more or less alone. They haven’t made any huge changes. Lots of small changes, but nothing huge, and they basically let the economy get on with it. They’ve been fortunate that the British economy, particularly the south-east of England, is well-suited to doing well in this particular stage of the global cycle, whether that will continue they don’t know and nobody else does, but it has been. So it’s delivered the goods. Basically he’s left the city to get on with it. They haven’t allowed anyone to interfere with it. They’ve let the new economy, as it were, burgeon in Britain. It has, and the economic record as a result overall in this globalising Britain, and they welcome the globalisation, again, is just about getting out of the way, has been I think an extraordinary success.
There’s no doubt about it and I credit Gordon here for, as it were, not getting in the way, which is a very good thing for a chancellor to do, not get in the way when something is working. He set the framework right at the beginning which allowed them to do this, and there’s no doubt I think that he is the most successful Labour chancellor ever by miles because of that. Then of course there are the things he really cares about and my own view is it’s when Gordon really cares about something that you have to worry because that’s when he starts focusing that maniacal ability, energy, drive to make sure something happens through the Treasury machine. To my mind, and it’s a controversial view, I wouldn’t say that’s always been a disaster. I think it would be far too extreme, but it hasn’t, to put it mildly, been a success and that I think is the downside of Gordon as a chancellor. And because he’s been at loggerheads with Tony Blair, as Nick has pointed out, on how to reform the public sector that’s been an even bigger mess in recent years. So there’s a real sort of paradox in what Labour has been good at and what it hasn’t been good at. It hasn’t been good at what it really wanted to do, which is to make the public sector a colossal success.
RM: I was going to say if we’re going to finish off with how Brown is remembered as chancellor I think Martin, you’ve given an eloquent summary.
MW: That’s how I see him.
RM: Obviously his decision to give independence to the Bank of England for setting rates you think is obviously a milestone decision in his legacy.
MW: I think he made two. There’s one other decision he made, which is so important that it must be stressed and I believe it was utterly right, which was to prevent us from joining the euro. He is responsible for that and it goes with the independence of the Bank of England and it has made our monetary policy a remarkable success. The other side of it is basically, as I said, taking it overall the fiscal management of the economy has been prudent, sound, reasonable. For these two decisions he deserves an immense amount of credit and though he certainly wasn’t responsible for the success of the British economy he can certainly claim to have created the conditions in which it was successful.
RM: Philip Stephens, Charles Clark, the former Home Secretary, described Gordon Brown as a control freak and I think Martin touched on that issue potentially. Do you think that’s partly how he may be remembered as chancellor?
PS: Well, he’s certainly that and I think those people who think that Tony Blair’s departure from Downing Street might see the return of a more collegiate style of government are going to get a very, very rude shock when Gordon Brown takes over. The country’s going to be run by a very, very small group of people. Gordon, I don’t think he understands what collegiate means and he operates through a very small clique. I mean, I basically agree with Martin on that if you say that Gordon Brown’s political task was to prove that a Labour government could run the economy well, Gordon Brown has done that and done it effectively and quite efficiently. I had one qualification though. I think in this Budget and in future Budgets were beginning to see taxation, personal taxation reaching the limits of what is politically, rather than economically, acceptable. Gordon Brown has had in each of these Budgets a number of stealth taxes, as the Conservatives call them. We’ve seen not a huge hike in taxation in one or other Budgets, but basically an accretion, a rising tax burden which is affecting people I think lower down the income scale. Now, I know from talking to people in the government that the opinion polling that they do, the very, very careful opinion polling, suggests that they’re about at the limits of what’s acceptable now. So I think the margin for manoeuvre for the government, whether it’s run by Gordon Brown or anyone else, is very limited. So in this Budget we’ll see him making the most politically out of not very much.
RM: Nick, any further thoughts?
NT: Well, the big challenge going forward is that over the next three years spending right up to 2011 there will be growth, but not on the scale that we’ve seen recently. You know, the government has some clear priorities such as education and health, which are going to take a large amount of that, so other areas are going to feel pretty squeezed. I mean, some of them are actually getting no real increase. Some are getting very small increases. So the challenge is going to be to make sure that, or to convince the public that the services are improving at a time of limited growth. That will be there for whoever is there, and after recent years I think that’s going to be quite tough to sell politically.
RM: Martin, Philip, Nick, thank you very much.