Martin Wolf: Enough of Soviet tractor planning

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Oh, the tedium of it! I respect Gordon Brown for his energy and ambition. Overall management of the economy has been competent and its performance satisfactory. But as I tried to stay awake during his Budget speech, I understood what it was like to listen to a Soviet commissar delivering a discourse on prospects for the tractor sector.This was the speech of a man with a plan for every cranny of British life – for children, childcare, skills, education, science, the environment, enterprise, economic development and even Olympic athletes (this being the most Soviet moment of all). Some of Mr Brown’s plans are sensible. Some look absurd. But what remains missing is an overall strategy for reform of the public sector or, equally important, of the tax system, under a putative Brown premiership.

In his heart, Mr Brown remains a man obsessed with quantitative targets for inputs and outputs, rather than a man who has internalised either the role of incentives or the deep uncertainty about the future. No passage from the speech better illustrates these failings than this: “Today the British economy has just 9m highly skilled jobs. By 2020 it will need 14m highly skilled workers. And of 3.4m unskilled jobs today, we will need only 600,000 by 2020.”

This is Soviet tractor planning at its ludicrous worst. Fifteen years ago, no one imagined the current economic role of the internet, for example. Yet the chancellor now dares to tell us the precise number of highly skilled and unskilled people the economy will “need” 15 years hence. In fact, he has no idea how many skilled people the economy will need (or, more precisely, demand) by then. Such “plans” are not worth the paper they are written on.

This was not the only ludicrous moment. Modest differentiation of vehicle excise duty (from a low of zero to a high of £210 a year) is a silly way to reduce pollution. The chancellor also announced there would be “new targets for expanding trade with China, India and emerging economies”. What on earth can such targets be for? The level of trade should be decided by businesses in the light of their perceived profitability. The UK does not need trade targets, manpower targets or the many other targets adorning Mr Brown’s multifaceted programme for its future.

It may seem strange to focus on the Budget’s role as a planning document for the country. But it is not as strange as one may think. As a statement of fiscal or economic policy, this Budget amounts to next to nothing. On an indexed base, the fiscal policy decisions add a mere £415m in extra tax in 2007-08 and £705m in 2008-09, after a giveaway of just £380m in 2006-07. Individual measures are tiny: the biggest for next year is the £275m cost of failing to adjust fuel duty for inflation until September 1 2006. The obvious opportunity missed was to announce a more dramatic transformation of the structure of the existing public debt, to lock in the astonishingly low yields on index-linked gilts.

If one views the Budget not as a tool of fiscal policy, but as a review of forecasts instead, all one can say is that the chancellor remains more optimistic about potential growth of the economy and the fiscal outcome than most analysts. But this time, at least, he has not been obliged to make any noteworthy changes to his forecasts from what he said in the pre-Budget report last December.

Economic growth is still expected to be 1.75 per cent in 2005-06, rising to 2.25 per cent next year, 3 per cent in 2007-08 and 2.75 per cent in 2008-09, before subsiding to 2.25 per cent in 2009-10 and 2010-11. The ratio of current receipts to gross domestic product is also forecast to jump from 38.3 per cent in 2004-05 to 41 per cent by 2008-09. Since current spending is expected to be only 39.4 per cent of GDP this financial year and then peak at 39.6 per cent next year, the current budget balance is forecast to shift from a deficit of 1.6 per cent of GDP in 2004-05 to a surplus of 0.1 per cent in 2007-08, which then rises to 0.8 per cent of GDP by 2010-11. This would also keep the ratio of net debt to GDP well below 39 per cent of GDP (and so inside Mr Brown’s self-imposed target of 40 per cent) throughout the forecast period (although only by excluding the private finance initiative, network rail and the rising discounted cost of public sector pensions).

Do I believe these forecasts? No. Does it matter dramatically if they prove wrong? The answer, again, is almost certainly no. Mr Brown may have to raise taxes or cut spending (or, as he always seems to call it, “investment”) by a little. That would be no economic crisis, although it would be politically embarrassing and would give David Cameron, the Tory leader, an attractive opening in the jousts ahead.

Far more important is what is happening to the economy. The chancellor was entitled to boast of his thoroughly respectable economic record, albeit one that looks stellar largely by comparison with the dire recent performances of France, Germany, Italy and Japan.

This will probably turn out to be a record 55th successive quarter of growth. Particularly eye-catching was his boast that national income per head is now second in the Group of Seven high-income nations, after the US. Economic stability also remains extraordinary by the UK’s historical standards. But the claim that underlying productivity growth is improving is questionable, to say the least. Recent data suggest it is deteriorating instead. The focus in the Budget document on productivity performance in the “first half of the current economic cycle”, between 1997 and 2001, borders on the cheeky.

In short, as a document on economic or fiscal policy, the annual Budget has simply become an absurdity, as I argued only last week (“It is time to scrap annual Budgets”, FT, March 17). This is a political document: Mr Brown’s plan for a better Britain. It must be judged by that standard.

Unfortunately for him, the chancellor has four big political handicaps to overcome. First, the British have become used to stable growth and no longer applaud him for delivering it. Second, the days of rapid expansion of public spending are over, but even enormous increases in real spending do not guarantee high-quality, or even crisis-free, delivery, as recent turmoil in health has shown. Third, the party he hopes to inherit from Tony Blair is returning to its preference for idioticd principles over power.

Finally, the British will, I suspect, reject their envisaged role as so many work units in the chancellor’s tractor factory. If Mr Brown was to enthuse them he should have produced something more enticing. Ten years is enough: it is time for him to move on.

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