Budget 1999: Politically, it sounds good. But will it work?

OH, TO be a Chancellor with a budget surplus, for suddenly Christmas has come. It is wonderful, is it not, how the dynamics change. Instead of having to explain why tax rates need to go up or cuts have to be imposed on hard-pressed public services, you just dribble out the good news: a bit of money here, a tax cut there, all phrased in the idea of "helping" people. Politically, it sounds terrific. Will it really work?

Apply three tests. Are the assumptions credible? Will the additional spending deliver value for our money? Is the fine-tuning of the tax system well-targeted?

The starting point is the Chancellor's economic forecast: the surpluses are the result of two things, the series of small tax increases imposed (usually with a delay) over the past five years, and the long boom. The tax increases continue, but will the boom?

The Chancellor says that after the briefest pauses this year it will: 1-1.5 per cent this year (against a consensus forecast of around 0.8 per cent), 2.25-2.75 per cent next year, and 2.75-3.25 per cent in 2001. Can this be right?

Well, it is perfectly possible that the consensus will be wrong and the Treasury right - such aberrations have been known to happen. My own instinct is that this year growth may indeed turn out above 1 per cent, but there may be much more of a problem next year. As for growth around 3 per cent in 2001 - that only happens if most things in the world economy turn out toward the better end of the possible scale. In short, the growth assumptions are at the top end of the likely range of outcomes. They are not impossible to achieve, but they are not the most likely outcome.

So the Chancellor is taking a medium-sized risk on growth. He is also taking a smaller risk on inflation. Assume that the 2.5 per cent target is met, for that is not the problem. The problem is that the 2.5 per cent target itself may look high by international standards as price destruction sweeps across the world. True, our method of calculating inflation produces a higher figure than that used by the other European Union nations, but even allowing for that, 2.5 per cent is high by developed country standards. These are not forecasts designed to push UK interest rates down to Euroland levels.

In short, the Budget projections carry risks. Given the awkward way economic reality tends to depart from comfortable expectations, beware the rosy glow surrounding his forecasts.

The next test is whether the additional spending will deliver value? We cannot know. The Chancellor's device is to make lots of noise, announce lots of tiny initiatives, devise lots of cutely-named schemes. We can see the input, but we cannot see the output. The omens are not brilliant. No-one should doubt the commitment of Gordon Brown to try to boost enterprise, but surely all past experience shows that governments boost enterprise by cutting regulation rather than introducing very complicated new spending schemes.

The Government's initiative on the millennium bug problem bodes ill. It lost a year by sacking the original advisers and delaying in appointing new ones, then launched a help programme which small businesses find useless.

The additional funds given to mainline government departments may indeed improve their performance - they certainly ought to - but we should judge by measures of the quality of output, not input. And the additional funds for enterprise? Well, the best that can be said is that they may offset to some extent the administrative burdens loaded onto small and medium- sized businesses since the election.

Test three is whether the rebalancing of the tax system encourages people to do the things that are helpful to society and discourages them from doing the things that harm society. For example, has he done enough to reduce the very high marginal rates of tax as people move from welfare into jobs? That is perhaps the single most damaging aspect of UK income taxation.

The aims here are completely laudable. It makes great sense to shift funds from home-buyers by ending mortgage interest relief at source (Miras) and move it towards the low-paid. It makes sense to take so many pensioners out of the income tax system. It makes sense to take a slightly larger cut on stamp duty on expensive homes. It makes some sense to increase fuel duty - though when talking about the fact that British consumers were hard done by, the Chancellor did not stress that Britain has the most expensive motor fuel in Europe. Paying too much for petrol and diesel probably worries more people than paying too much for computers.

In balance, Mr Brown is probably making incremental improvements to a tax system that is already, by world standards, benign. If there is a reservation, it is that these improvements, at least as far as companies are concerned, seem to be at the cost of some additional complexity. All chancellors have a desire to fiddle with the system; this one suffers from it as much as most.

How will this Budget be viewed in history? You could almost say, that given the penny of the basic rate for 2000, it will be Mr Brown's shot for Labour at the next election. The good news, not just for this year but also for 2000, is in the pot. Sure, there will be some fine-tuning next year but given the lags between a policy being announced and taking effect, we are really being given a budget on which we should judge not only the Chancellor but also the Government.

If the good times continue to roll, and these modest tax cuts and modest public spending increases can be unwrapped year after year, then we will all say thanks to Santa. And if growth is indeed 3 per cent in 2001, then the Government can expect to be popular indeed. But are there not too many "ifs" here?

Apply the tests. Are the economic assumptions credible? Not really. Will additional spending bring better value for money? Fingers crossed. Is the tax system being improved? On balance, yes.

That is not a bad score; in fact it is quite a good one. But if test number one fails and the economy slows seriously next year, then yesterday's warm glow will quickly fade.

Suggested Topics
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
The Pipes and Drums of The Scottish Regiments perform during the Opening Ceremony for the Glasgow 2014 Commonwealth Games at Celtic Park on July 23, 2014 in Glasgow, Scotland.
Commonwealth GamesThe actor encouraged the one billion viewers of the event to donate to the children's charity
Sport
Karen Dunbar performs
Entertainers showcase local wit, talent and irrepressible spirit
Sport
Members of the Scotland deleagtion walk past during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
PROMOTED VIDEO
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
Life and Style
fashion Designs are part of feminist art project by a British student
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
News
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game