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Once he is ex-chancellor of the exchequer, Gordon Brown may come to regret his 10th budget. Supremely confident, he launched a barrage of voter-friendly initiatives, from school science clubs to housing insulation. Yet on the central economic issue of whether his numbers add up, he said almost nothing.
It is, of course, only 15 weeks since Mr Brown presented his pre-Budget report. That argued that the UK’s public borrowing, at 3 per cent of gross domestic product, reflected an economy performing below its capacity, not a profligate government. Borrowing in 2006-07 of £36bn will be £2bn higher than expected. Beyond this, Mr Brown’s GDP, revenue and spending forecasts are substantially in line with the pre-Budget report.
Two big questions remain. The first is whether the chancellor’s view of the UK as “the most flexible economy in the world” is now deeply flawed. Tax and national insurance receipts are forecast to rise to 38.7 per cent of GDP, the highest level since 1984. Under Mr Brown, the UK has become less, not more, like the US economy he so admires. Wasteful public spending partly explains the UK’s weak productivity record.
The second question is how much risk Mr Brown is taking with his forecasts. They are premised on a recovery of growth towards 3 per cent, from a current 1.8 per cent, buoyant receipts and very tight control of real spending from 2008 onwards.
There is still no room for slippage. If a future prime minister Brown does raise taxes, or breach his debt targets, it will be politically costly.
Despite this, the debt market, with yields distorted by pension fund demand, is hungry for paper and will welcome the chancellor’s promise to issue more long-dated gilts. The Labour party, embroiled in a scandal about secret loans, must marvel at its future leader’s ability to borrow cheaply at will.