Comment: Conjuring trick leaves a tax cut on the cards

It is only natural that as the general election draws closer the smoke obscuring the public finances should get denser, the mirrors more distorting. The achievement of yesterday's summer forecast was simultaneously to increase the PSBR figures to more realistic levels, keep people guessing about whether there would nevertheless be tax cuts in the Budget, and predict that Britain will still be able to satisfy the Maastricht requirement that borrowing should be less than 3 per cent of GDP by 1997. So there you are. Magic. The Treasury officials who conjured up this one deserve to be put on one of those new fangled, Greenbury-approved, long-term performance- related bonus schemes.

The Maastricht trick relies on the fact that the deficit that counts for membership of the single currency is a slightly different definition to the PSBR. It excludes privatisation proceeds but includes a variety of other transactions such as debt write-offs for public corporations and cash-flow delays. The upshot is that though it has been higher than the PSBR for the past 15 years, it will be lower in 1997/98. Nothing suspicious in this, the Treasury insists, just a fact of life. Jolly handy one, though.

But enough of Maastricht. Europe is boring. What we really want to know is whether the condition of the Government's finances allows Kenneth Clarke to deliver tax cuts. Borrowing may well turn out to be even higher than the Chancellor's new forecasts. This would firmly close the door on any tax cutting if the Chancellor is serious about getting the budget to balance by the end of the century.

On the other hand, given that the Treasury prediction for the PSBR this year and next is now similar to what independent economists expect, Mr Clarke may be able to get away with what he did in the last Budget. It may be possible to find pounds 2-3bn for lower taxes by trimming expenditure a bit here and cutting the contingency reserve there without entirely sacrificing his credibility as a Chancellor who is tough on borrowing. His claim that borrowing is on a downward path will still be true, as will his forecast of a balanced budget in the medium term. As at the time of the last budget, however, the "medium term" becomes a year later.

The chances are that the information available about revenues and spending by November will leave the latter option open to Mr Clarke. But if he is sincere about the need to reduce borrowing, he will avoid the temptation. The tax increases announced by his predecessor Norman Lamont looked for a while as though they had helped close the "structural" budget deficit, the bit that economic growth could not whittle away. Unfortunately the Lamont medicine has worn off.

Slow growth in tax revenues due to changes in the economy ranging from corporate avoidance to the new "flexibility" of the labour market have reopened the structural gap. If Mr Clarke entertains serious hopes of still being Chancellor after the election, he should be trying to solve the borrowing problem the next Government will inherit. All the same, the fact that the summer forecast gives him room for a minor tax cutting Budget if the politics require it must be something of a comfort.

Let the MMC settle the gas pipeline battle

With two weeks to go before Clare Spottiswoode publishes her final, final, yes, she really means it this time, FINAL, proposals for price regulation of British Gas's pipeline business (TransCo), there's no sign whatsoever of either side budging from the entrenched positions they have taken up. More than a month of screaming, shouting, lobbying and manipulating by British Gas has failed to persuade the regulator to alter her proposals one jot. As far as the regulator is concerned, the point about depreciation is non negotiable; either TransCo accepts this downgrading of the amount of depreciation it is allowed to take out of charges or the whole thing goes to the Monopolies and Mergers Commission. The lady is not for turning, and no amount of pressure or lobbying will persuade her.

As for the other half of this review - tough new efficiency targets and a 7.5 per cent rate-of-return assumption - there doesn't seem to be much room for manoeuvre there either. The regulator's view is that these are perfectly reasonable assumptions and there's not a snowball in Hades chance of the MMC being persuaded otherwise. Sulking miserably in the corner, TransCo retorts that it has not yet been allowed to see the Coopers & Lybrand and WS Atkins reports on which the assumptions are based. I'll publish them then, says Clare Spottiswoode. Er ... hold on, says British Gas, we didn't say publish. There's a lot of commercially confidential information in those reports and we don't want every Tom Dick and Harry gaining access to it, do we?

Why not, says Ms Spottiswoode. Everyone complains about lack of transparency in utility regulation so let's publish and be damned. And so the debate, or rather slanging match, goes on, and on, and on. The sooner the MMC is assigned to the case the better for everyone. The MMC might itself be a somewhat discredited organisation these days. But anything seems better than this. If the regulator is indeed shown to have got it fundamentally wrong, then the already strong case for root and branch reform of our regulatory system becomes overwelming.

BAe must give a little over Airbus

It may have taken the four partners in Airbus and their sponsor governments a decade to agree to turn the consortium into a single corporate entity but in retrospect that will probably come to be seen as the easy bit of the exercise. The hard part begins now and, if past experience is any guide, Airbus will need all of the three years it has given itself and more to emerge as a fully fledged commercial operation with its own assets and equity.

The most difficult issue is the respective valuations of the assets being contributed by British Aerospace, which has a 20 per cent stake, and the French and Germans, who each hold 38 per cent. BAe has a good case for arguing that its assets entitle it to more than 20 per cent of the equity since its Airbus division, unlike those of the French or Germans, is profitable and efficient. BAe has also gone further than its Continental partners in subcontracting out its work-share.

Since BAe does not appear to want to increase its share of the equity, that would mean the other Airbus partners compensating it for the value of the assets it will contribute. BAe's shareholders would rightly castigate the management if it sold them short, but at the same time they need to look to the extra profit that will accrue if Airbus is placed on a truly competitive and commercial footing.

If the French can cede the principle that 38 per cent of each Airbus that rolls off the assembly line in Toulouse must be made in France, then BAe can afford to give a little as well. There is a bigger prize to be had - the prospect of a fully fledged European competitor to Boeing - which dictates that national considerations be put aside.

Start your day with The Independent, sign up for daily news emails
News
people

Harry Potter actor suffered 'severe flu-like symptoms' on a flight from London to Orlando

Arts and Entertainment
Legendary Star Wars filmmaker George Lucas
film
News
news
Arts and Entertainment
tv

First full-length look is finally here

PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
Frank Turner performing at 93 Feet East
musicReview: 93 Feet East, London
News
Toronto tops the charts across a range of indexes
news

World cities ranked in terms of safety, food security and 'liveability'

Extras
indybest
Voices
A mother and her child
voices
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
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

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

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...

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