Good for starters, but we need the main course
Thursday 03 July 1997
Well, yes, yes, and yes. It is always difficult to make judgements with any confidence in one's first reaction to a budget - second thoughts are usually better than first - and it is particularly difficult here to gauge how robust the numbers we were given yesterday will prove to be. But, in his words, the new Chancellor has been able to stand outside British politics and frame something that is orderly, logical, credible and appropriate in a global economy.
Yesterday I suggested a series of tests that should be applied which go beyond the conventional analysis of a budget's short-term monetary and fiscal implications. These were whether the Budget was sensitive to the global nature of the world economy; whether it was sensitive to environmental needs; and whether it was fair between generations. The very first words of Gordon Brown acknowledged the first of those; halfway through he made the telling point that a tax system should favour the things society wants to encourage and tax those, like pollution, which it wants to discourage; and the overall deficit-reduction programme means that the UK is cutting the burden on future generations more quickly than any other large industrial country. Unsurprisingly the detail is less impressive than the rhetoric; but at least he understands both the limits and the opportunities. And if all he is doing is carrying on in the same broad direction as the previous government, but at a slightly faster rate, then that should be all the more welcome.
"Globalism" has become such an over-used word that anyone who puts it in a speech is liable to irritate or bore. But it matters, for the world economy is now more international, more interconnected than at any time in history. As trade shifts from the physical transport of goods towards the transport of money and knowledge, the physical location of a factory matters less and less. A call-centre can be anywhere. So creating a stable and friendly environment for global businesses is immensely important. The symbolic cut in corporation tax is therefore a powerful signal to the world's businesses that Britain sees itself as continuing to be a welcoming and stable place to come to.
Two other early points in the Budget reinforced this. One was the acknowledgement of the importance of small business. Small businesses are the main net creator of jobs, not just here but throughout the mature developed countries. The other was the point about knowledge and creativity, and the relationship between knowledge and education. In a world where manufacturing technology crosses national boundaries in weeks, the only way of securing a comparative advantage is to be cleverer and more creative than other countries. Anything we do to encourage those talents must be worthwhile.
The second test is the environment. Here the actions are less impressive than the words. Sure, the cut in VAT on fuel was an election commitment, but it still sends the wrong signal. The modest further increases in road fuel duty hardly offset that damage. The other measures were minimal. Mr Brown has only put down a marker here for future policy. The reality is much less impressive than the rhetoric.
And fairness between the generations? The key thing here is not to run up debts that future generations will have to repay. Contrary to Mr Brown's Commons statement, the Tories were not particularly profligate. Unlike every other large developed country, overall public debt ratios now are no higher than in the 1970s; and the previous government's plans would have led to a surplus early in the next century. All the Chancellor has done is to roll this debt reduction programme forward, so that we should move into surplus a year earlier than we otherwise would.
But it is a start. Real fairness between generations will mean each generation saving for its own retirement and health-care rather than relying on the next. It would have been more encouraging had the Chancellor been able to get his plan for individual savings accounts moving this year rather than 1999. And we should remember that the changes in the tax paid by pension funds will reduce the pool of savings available to look after people currently saving for their own pensions. The words are there; the sense of order is there. But the substance is quite thin.
Maybe the most sensible way to see this budget is an hors-d'oeuvre: an array of light dishes, presented by a stylish new celebrity chef, which give a broad indication of Mr Brown's competence and his priorities, but do not on their own make a satisfying meal.
Of course it is difficult to cobble together a polished dinner from what you found in the fridge, even one decently stocked by the previous occupant. But this one is presented with great sensitivity to what diners need and want. It is healthy and the bill so far is acceptable. The inevitable weaknesses have been cleverly concealed. If the main course next spring lives up to this promise I suspect that diners at home, plus tourists from abroad, will come back for more. Above all, our new restaurateur knows that if standards slip there are plenty of other places down the road where people can go.
Back to globalism, where the Budget began: governments are competing with each other, as never before, to deliver high quality services funded by efficient, non-distorting taxation. By world standards this looks pretty good. But it is only the starter.
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