Comment: Chancellor bets all on electoral jam tomorrow

As Tory backbenchers emerged from the Chamber downcast after Kenneth Clarke's tepid shower of tax cuts, the word was soon being put about that the Chancellor could preside over a bigger giveaway next year. The Treasury had apparently stacked away a nice little earner of tax cuts in its ultra- conservative forecast of tax revenues next year. Allow for this, and the pounds 22.5bn forecast for public borrowing next year that so rattled the City will turn out to be too pessimistic, allowing the Chancellor to cheer up the troops in a year's time.

Certainly the electoral logic of this Budget makes it look like the first of two. An irresistible precedent is Nigel Lawson's 1p off the 30p basic rate of tax in 1986, followed by 2p off in the pre-election Budget of 1987 and the bait to the electorate of a 25p rate. The hope on the backbenches is that Mr Clarke will preside over a similar 2p cut next year, with the promise of a 20p rate after the election being dangled in front of the electorate .

There was, however, one big difference in the tax cuts Mr Lawson presided over: the budget deficit was running in single figures. In 1988, the Chancellor was able to deliver the pledge of a 25p basic rate of tax and balance the budget - indeed it had swung into surplus. By contrast, Kenneth Clarke's ambition of balancing the budget has now been postponed to the final year of the decade, the occasion for a pre-millennium knees-up at the Treasury.

Even so, the Chancellor's hand would be greatly strengthened if he could announce a more favourable outcome to the PSBR next year thanks to better than expected tax revenues. According to the Institute for Fiscal Studies, that is a distinct possibility. They say the Treasury is too pessimistic, to the tune of pounds 4bn. On the basis of the Treasury's forecast for growth in nominal and real GDP, the institute's model projects a PSBR next year of pounds 18.5bn.

Fast forward to the House next November. Mr Clarke, glass of cut-price whisky in hand, galvanises the backbenches with the news that the PSBR has come in at about pounds 18bn. That makes Britain one of the few countries already eligible for entry into EMU. What's more, he will say, the budget deficit continues on a downward path to pounds 12bn, the sum projected by the Institute for Fiscal Studies for 1997-98 on the basis of its less pessimistic view of the prospects for tax revenue. One more squeeze on public spending, another push on the private finance initiative, and that journey towards a balanced budget remains on course - together with a further 2p off the basic rate.

Now spin the tape back and consider a more gloomy but equally plausible prospect. The Treasury's forecast for tax revenue could well err on the side of caution. But its projection for expenditure almost certainly errs on the side of optimism. The control total is set to fall in real terms by 1 per cent next year. But then it was forecast to do precisely that in 1994-95. Instead it grew by as much. Again, in the current year, the control total was set to fall at the time of the last Budget by about 1 per cent. Now the Treasury admits it will grow by almost half a per cent.

If you look at total spending excluding privatisation proceeds, the position is markedly worse. Debt interest this year is up by a cool billion pounds on the figure previously forecast by the Treasury. On this measure, public spending will grow by 1 per cent in real terms this year.

Likely expenditure overruns are one way in which the Treasury's alleged hoard of tax cuts could vanish into thin air. The other is if its growth forecast of 3 per cent turns out to be over-optimistic, as several City analysts suspect.

The electoral logic may point to a rip-roaring Budget a year hence. The structural deficit of Britain's public finances points in a more sober direction. In this, as in so many other aspects of the economy, the 1980s do not provide helpful portents for the 1990s.

Putting a new gloss on an old story

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
people
ebooks
ebooksA special investigation by Andy McSmith
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
News
Courtney Love has admitted using heroin while pregnant with Frances Bean Cobain, her daughter with Kurt Cobain
people
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

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee