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
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
News
ebooksNow available in paperback
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
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: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum