BEFORE Gordon Brown, Budget Speeches used to be about running the economy. Now they are about running the whole country. Since Mr Brown arrived at the Treasury, Budget has been transformed from an announcement on economic management, taxes and public spending, to a detailed programme of work for every part of the Government for the years ahead.
This was bound to be truer than ever just before an election, at a time when the Chancellor is openly angling for the Prime Minister’s job — and the consequences of transferring the management of the whole Government to the Treasury from the Cabinet and 10 Downing Street, were very apparent in yesterday’s speech.
Almost all the interesting announcements yesterday were totally unconnected with the Budget’s traditional subjects of economic management and tax. Ranging from the promise to build a memorial for the late Queen Elizabeth the Queen Mother to new policies on stem-cell research, they had nothing to do with the Treasury’s normal preoccupations — or with its areas of expertise.
What has the Queen Mother to do with the management of Britain’s finances? What does the Treasury know about the education of 3-year-old children? And what is the Chancellor’s locus standi in asserting that “the first few months are so important in the life-chances” of children, that the Government must now take responsibility for “learning experiences” in the cot?
These questions are not just of academic interest. They crystallise both the achievements and the failures of the Government, which were represented in equal measure in the speech.
To start with the achievements, by far the greatest is the fact that a Brown Budget always manages to deal with the big economic issues in just 15 minutes. To see why this brevity is such a triumph – and why it will probably win Labour re-election in two month’s time – it is enough to think back to the Budgets of Nigel Lawson and John Major.
In those days, the speech would begin with a long theoretical disquisition on monetary aggregates and medium term fiscal strategies. The Chancellor would then move on to a complex analysis of the “Budget judgment” – essentially whether mass unemployment, rampant inflation or high interest rates posed the greatest threat. This would be followed by a long discussion on the need for radical reforms in the structure of the tax system, with the rates of income tax, national insurance or VAT almost invariably changing in a substantial way. After an hour of more of this jargon, the Chancellor’s performance would wind up with some “eye-catching initiatives”, supposedly to delight pensioners, drinkers or smokers, before the Chancellor ended by announcing that the Bank of England had just been instructed to reduce its minimum lending rate, and therefore the cost of a home loan.
Luckilyall this gobbledegook is now as retro and out of date as Margaret Thatcher’s swinging handbag. Neither inflation, unemployment nor interest rates are serious worries, monetary policy has been devolved to the Bank of England, the Government’s monetary and fiscal strategies have remained essentially unchanged since the late 1990s, and there has been only one significant change in the main tax rates (a small increase in national insurance) during the past four years.
Mr Brown himself accurately summarised the reasons why he has been able to take almost all of the economics out of his Budgets in a line that will surely be Labour’s main election theme: “Those of our critics who forecast recession and called our public spending plans unsustainable have been consistently proved wrong.”
Not only is this factually accurate, but it will remain true, to judge by the information published yesterday in the Budget Red Book. Government revenues have increase a little more strongly than expected in the past few months and if the economy manages to maintain broadly its present growth rate, then the public spending plans for the three years to April 2008 should be quite possible to finance without any increase in tax rates – and that includes the continuing large increases for education and health.
The main reasons for Mr Brown’s ability to defy the sceptics are broadly the same this year as they have been since 1997. The economy has kept growing, with the Bank of England managing to steer Britain through the global business cycle with remarkable aplomb. And as long as the economy keeps growing, tax revenues will remain buoyant as a result of what economists call fiscal drag. This is the process whereby workers move into higher tax brackets because their earnings are rising faster than price inflation and it goes a long way to explain the apparent paradox of the Government’s tax take rising steadily in relation to the size of the economy, even though no new tax increases are announced.
In the year ahead, for example, the Treasury expects to collect 8 per cent more taxes, even though the economy will expand by 5 to 5.5 per cent, taking both inflation and real economic growth into account.
But even if the Treasury can confidently rely on gradually rising revenues in the year ahead, without announcing unpopular taxes, does this mean that Mr Brown will remain invulnerable to economic attacks in the months ahead? This depends very much on whether the Tories continue to dash themselves to pieces in attacks on a macroeconomic strategy that has worked remarkably well, or whether they choose a subtler approach hinted at the end of yesterday’s rebuttal speech.
While Mr Brown is, in my view, invincible on the traditional issues of macroeconomic management that used to dominate election campaigns, as well as Budgets, his speech exposed a vulnerable flank. The Treasury’s usurpation of all the normal functions of government means that Mr Brown can now be held responsible not only for taxes and public finances, but for all the detailed failures of Labour’s public policy, ranging from hospital waiting lists to truancy and street crime.
The more Mr Brown tries to links the success of economic policies with the challenges of crime, health and education, the easier it will be for the Tories to discredit his economic record. And this is not just a question of rhetoric or political tactics. The fact is that two key aspects of Mr Brown’s policy do, in fact, seem inimical to improvements in the public services. The first of these obstacles is his insistence that health and education must forever be organised by Government and funded through taxes.
A second, less familiar, blindspot is his obsession with “investment”. This is reinforced by the straitjacket of the so-called Golden Rule, which favours investment, for example on school buildings and computers over current spending on teachers’ salaries or reform.
The way that a combination of Treasury self-aggrandizement, micro-management and investment bias could lead Mr Brown into political minefields was illustrated by what was, to me, was the most revealing assertion in his speech, when he said that “teaching today is not about blackboards and chalk but about computers and electronic whiteboards” and then went on to boast about an increase in spending on school computers from £100 per pupil to £1,000 per pupil in ten years.
Is this really the right priority for improving education? Wouldn’t it be better to spend the money on hiring teachers or creating referral units for disruptive students? Are the Chancellor and his Treasury mandarins, rather than teachers and parents, best placed to decide? For once, Michael Howard deserved the last word: “This Budget has done nothing to give parents the school discipline and higher standards they want. IT has done nothing to give them clean hospitals and cut waiting-lists. It has done nothing to deal with soaring crime and the growing lawlessness in our society.”
By annexing these issues, Mr Brown has put himself in the line of fire not only for the Government’s economic achievements, but also for its social policy failures.
