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On
17 September, barring unexpected promotion or demotion, Gordon Brown will
become the longest-serving postwar chancellor. If he lasts until July next
year, he will overtake Lloyd George to become the most durable since
Gladstone. Six years in, Brownism may be somewhat bruised, but, remarkably,
it has retained its essence even in the harder times he faces now.
The strange ambition of Brown's chancellorship has been to limit, through
pre-announced principles and decisions, his own annual room for manoeuvre in
the three main areas of budget-making: tax, borrowing and spending (he has
relinquished control of a fourth lever, monetary policy). The miracle is that
the sums still, with a few sleights of hand, pretty much add up.
The strictest self-administered discipline has been on borrowing. Contrary to
predictions, the Budget broke neither Brown's own golden rule of zero net
borrowing over an economic cycle (except for investment) nor the European
rule of not borrowing more than 3 per cent of GDP in any single year
(including for investment). True, this has been achieved partly through
optimistic projections of future growth alongside downward revisions of his
prior assumptions of current growth. But even considerably more pessimistic
growth assumptions than Brown has made are likely to do no more than nudge
the limits of the borrowing disciplines rather than bust them dramatically.
On tax, things have been looking decidedly more flaky. The main constraint of
not raising the basic rate of income tax has now been breached in all but
name by the 1 per cent National Insurance charge on every taxpayer's entire
taxable income.
Such adjustments, however, are as nothing compared with the remarkable
achievement of sustaining untrimmed an unprecedented expansion of public
spending on health, education and income transfers to poorer families and
pensioners. Again, the strategy has been pre-announced, through the spending
reviews and previous budgets, rather than depending on annual decisions.
Simply to avoid the unravelling of such a strategy during the downturn (which
could yet happen if an ailing world economy takes ours further down with it)
would be a historic achievement.
Previous chancellors, especially Labour ones, have not come close to sticking
to their game plan in this way. Three of them, Philip Snowden in 1929-31,
Stafford Cripps in 1947-49 and Jim Callaghan in 1964-67, had strategies
dominated by holding the line on sterling and faced humiliation when they had
to devalue. Denis Healey in the 1970s was more consistent, but only because
his plans for austerity were well entrenched even before he cut spending to
keep the IMF happy; and this did not stave off humiliation at the hands of
the unions, which failed to play ball with the other instrument of restraint,
incomes policy.
Brown is a much luckier man than Healey and has only been able to bring off
the hat-trick of containing borrowing and taxation while raising spending
because he inherited an economy in which employment, inflation and growth
were all going in the right direction. The present administration can justly
claim credit for many policies that have helped maintain that state of
health. But this Budget gave prominence to measures aimed at some of those
enduring weaknesses in the British economy that could still make things go
pear-shaped.
Perhaps the most important is the housing market. Brown rightly pointed out
that its roller-coaster tendencies have been an important factor in the
British stop-go syndrome that he wants to abolish. Brown announced that the
government will look into the possibility of more fixed-interest mortgages,
which would reduce volatility; and that it will further press local
authorities to approve more land for housing, which would tackle the
under-lying problem of shortages in supply. Alas, neither will stave off the
more immediate and possibly disastrous prospects of a collapse in the
ludicrously overinflated housing market of 2003.
Another weakness that it could take a generation to tackle properly is the
imbalance in prosperity across the regions. Brown announced sensible ideas
about encouraging public bodies to locate staff outside the south-east, and
giving various forms of help to deprived areas. Perhaps the most welcome was
an incentive to local councils to encourage new business in their areas, by
allowing them to keep some of the receipts from business taxes.
Finally, an age-old British disease that has so far been only half-tackled is
the inequality in people's skills and expectations. The government has
provided incentives for work and helped people to find jobs, but it has not
done much to help workers move on to better jobs and living standards. This
Budget put considerably more emphasis on worker training, and reported some
progress in raising Britain's relative productivity levels. It also
introduced the new child trust fund, which aims to give future generations a
small asset when they turn 18, partly in the hope that deprived young people,
seeing that they do have a stake in society, will raise their ambitions.
These measures are modest in relation to the huge weaknesses they are
designed to address. But the emphasis of this Budget showed that Gordon Brown
recognises that his legacy will depend on much more than the tax, spend and
borrowing levers that he has manipulated with such aplomb.
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