Stand and deliver, Mr Brown
Test what Mr Brown says against Lara Croft: does he make it more likely Britons take risks?
Tuesday 09 March 1999
Gordon Brown has proved himself to be a skilled plucker. So successful, in fact, that he will announce today that the budget is in surplus. Thanks in part to the strong economic growth but also thanks to his ability to nudge up taxation without us noticing too much, he will be able not only to unveil the surplus but also cut some taxes and announce some new initiatives to promote faster growth. Oh yes, and there will be some new, albeit modest, spending proposals too.
A lot of feathers, muted hissing - is it all to good to be true? Anyone who doubts the way in which the public verdict of a Chancellor can change should remember the fate of the last Chancellor to announce a surplus, Nigel Lawson. At the time he was the great hero of the government; now, fairly or unfairly, he is regarded as the perpetrator of the "Lawson boom", and the subsequent recession. Listening to Gordon Brown today we will hear similar triumphalism. How do we distinguish the new clear signals from the cacophony of the background noise? How soon will we, as we did with Lord Lawson, start to hiss?
The new information comes in three chunks. First, what seems to be happening to the economy, for that determines the background to both the spending and the revenue side of the budget. Second, what is new about public spending, for that will ultimately determine what happens to overall tax levels. And third, to what extent is the tax system being fine-tuned to discourage things that the Government does not want people to do, and encourage things it does.
As far as the economy is concerned, it will be humble-pie time - or at least it ought to be - for growth this year is clearly going to be much lower than the Chancellor was predicting last summer. Then he forecast 2 per cent growth this year. We all knew that was for the birds, and said so at the time. By November, he was down to 1 to 1.5 per cent, which still seemed a bit unlikely. Now the forecast will probably be 0.5 to 1 per cent, which looks more reasonable. The more contrite the Chancellor is about previous overestimates, the greater the credibility of the new estimates.
The next thing to watch for will be the forecast for next year. Will there be a solid recovery in the year 2000 after the pause this year? If so, why? Is the Chancellor worried about the slow-down in Europe, for growth in Euroland ground almost to a halt in the last three months of last year? If growth has been lower than expected, why will the Government's finances be better? It is partly because that growth in revenue tends to lag behind the growth of the economy, so that the Government is now receiving the benefit of the strong growth of a year or 18 months ago; it is partly because of the tax increases that have been slid in over the last two years; and it is partly because spending has been held down.
That leads to the spending side. One of the characteristics of our Chancellor is that he keeps announcing new spending moves, which sound impressive, but when you add up what is actually being spent, it is really very small. The Government has also been quite good at trying to extract more efficiency from the public sector, so the combination of small dollops of money and a general drive for better quality has given the appearance that it is running its own activities reasonably well. That is probably a fair judgement. But when examining public spending plans, look for indications of the output as much as the amount of money going in. Is the government really spending more, and if so, how well? And to what extent is it shuffling money between departments?
One thing is absolutely sure. If the government is really spending more money, the tax burden will rise. If not, then the tax burden will not rise. Elementary, but not something that Chancellors tend to shout about. And taxes? We know quite a lot about what will happen, thanks to the wise policy of having a green, or outline, Budget in November. There will be the announcement of a new 10 per cent starting band for income tax. Other hot political issues will be whether tax is applied to child benefit (probably not) and what happens to the married tax allowance. There will be higher taxes on petrol and tweaks to the car tax system. But perhaps the most important tweak to the tax system - the one which will determine whether the budget can really be used to improve the growth prospects of the country - will be what Gordon Brown does to stimulate enterprise.
That might seem an odd point to make. Labour governments have not historically been very strong in the enterprise department. It is to the great credit of this one that it is aware that the rate at which new businesses start is one of the most important determinants, maybe the most important, of the future wealth of this nation.
For Gordon Brown, this is particularly important. He won't be Chancellor for ever: he will either be promoted or sacked. How do you make your mark? How do you really change things, hopefully for the better? Answer: you try and improve the long-term growth performance of the economy.
The most interesting aspect of this is the desire to boost risk-taking, the aim to inject something of the fizz of American entrepreneurship into the British psyche. In terms of economic self-confidence, there is a gigantic gulf between the self-confident "we can conquer the world" attitude of the new businesses sprouting all over America (often started by 18-year- olds) and the worried, inward-looking "play it safe" attitude of much of continental Europe. Britain is somewhere in between: we have some of the American vigour, but also some of the continental timidity. But what can you do?
We will learn today, though we won't know the outcome for a decade or more. There will be a new package of measures to promote business start- ups, and to make it easier for small companies to raise risk capital. But can you make people want to take risks? It is not just a question of money; it is also a question of temperament; of style; of the values that society puts on different human behaviour.
As a society, we clearly welcome people making money from performance: football stars and pop singers are the heroes and heroines of the age. We don't, in general, welcome business people making money. We welcome people starting high-technology businesses, but we are more ambivalent to people taking over and trying to improve low-tech ones. Contrast the attitude towards Ian Livingstone, creator of Lara Croft, and the people trying to cope with the backlog of two generations of underinvestment in the nation's trains.
Is Lara Croft high technology? That is the other thing. The new industries we are creating are brain industries: software as much as hardware. High- tech is not just Cambridge science park, though it is that too. It is bright people with ideas. When Gordon Brown stands up today, test what he says against Lara Croft: does anything he does make it more likely that talented Britons will take risks to create the new companies of tomorrow?
If not, then he will ultimately be judged a failure, like so many of his predecessors of both parties - and for that matter, like Colbert.
Colbert was a great initiator of state scientific enterprises. It seemed to work for a while, but ultimately English market-led policies outpaced French, state-led ones. Clever plucking isn't enough.
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