Hamish McRae: The curtain falls on the Brown era. Next on stage could be a fall guy for tax rises

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The Independent Online

Interest rate rise done and dusted. US politics sorted. So what's next? Answer: Gordon Brown's pre-Budget report, which sets the parameters for what will be his swansong Budget next spring. It will be presented at the end of this month or more probably, since they haven't come up with a date yet, early December.

The Chancellor has been such a fixture for so long that it will in a way be a relief to realise this is the home straight - the last time we listen to the self-congratulation and the "but we must do more" incantation.

It is the nature of public finance that the main spending decisions for next year have to be made now. While you can make swift changes to taxation in the Budget, spending has to be planned months ahead. The various departments need to know what they are supposed to be doing - an imperative increased by the Treasury's attempts to micro-manage how they spend their money.

Given the Chancellor's particular penchant for announcing Budget measures in the pre-Budget report, we also will get a very politicised presentation of the state of the public finances. Of course we always do, but this year there is the most obvious reason: he needs to present his decade as Chancellor as a triumph. There is, after all, another job to be done.

So what should we think about all this? What should be in the back of our minds when the Chancellor stands up?

The starting point must be the achievement of economic stability - the longest period of uninterrupted growth ever achieved. The first five years of this came under the Tories, the next 10 under Labour. How the credit should be shared can be debated endlessly - the micro-economic reforms of the Tories versus the macro-economic structure of Labour - but the undeniable truth is that this has been a successful era economically for the country.

But now there is quite a lot of hostility towards the Chancellor - and in particular towards his increases in tax, the extent to which the burden of public spending has been shifted forward to future taxpayers, and the way in which some, not all, of the extra spending has been wasted. So one of the things he will be seeking to do in his final Budget is to counter these charges.

To put these into context, look at the two graphs above, both taken from last year's pre-Budget report. As the graph on the left shows, the charge that he has increased taxation only partly stands up. As a proportion of GDP, taxes had not until recently risen much over the period of Labour: they went up a bit in the first term of office, then actually came down between 2000 and 2004. Now they are indeed rising and are projected to rise further.

But the sting is mostly still to come. If taxes were to follow the path set by the Chancellor until 2011, they would be back to the peak of the early 1980s, in effect reversing all the Tories' work in reducing the tax burden. But that is a big "if": no chancellor, not even Mr Brown, can tie the hands of his successors.

Actually, the thing I find intriguing about this graph is not so much that tax has gone up but that Mr Brown managed to gain a reputation for increasing taxation before he had really got going. He got no credit for cutting tax as a percentage of GDP during the early years of this century, even though this was essential in keeping the economy growing through the global downturn. Now, that reduction in tax revenue was unintended - the Treasury kept missing its forecasts - but it did happen and not many people realise it. Instead the money was borrowed.

The other graph shows the spending side, and here the Treasury has taken a longer perspective, going right back to the early 1970s. On this long-term view, there has been a general downward trend in public spending as a proportion of GDP. When set against the peak of nearly 50 per cent of GDP, spending in the 42 per cent region seems reasonable. Globally, though, the level of GDP going through governments has been coming down in recent years. That's partly because the econo- mies where government is relatively small, such as the US and China, have been growing more rapidly than those where it is big - most notably in continental Europe. So while our long-term trend has been consistent with what has been happening in the rest of the world, our short-term trend runs counter to it.

When, 10 or more years from now, a proper perspective on Mr Brown's decade as Chancellor is possible, I suspect the present increase in public spending won't seem like a disaster but an aberration - simply a movement that was out of step with the rest of the developed world.

As to whether the money has been spent wisely, the main point here is that is very hard to do so with sudden increases in funds. The next chancellor will need to look at public spending with an independent eye rather than a political one if we are to learn from the experience. There will be some hint of concern in the pre-Budget report, though it will not be presented as such. It will come in the form of assumptions about the increased efficiency expected from civil servants.

The buzz phrase will be "front-line services" - something about directing resources there. This will signal the overall squeeze that is in train, and switching from growth mode to a steady state will be a painful legacy.

But the part of the Brown legacy that will attract the closest scrutiny over the next 20 years will be the off-balance-sheet one. Whatever the arguments for getting the private sector to finance and build hospitals, and there are many, the state will have to pay for these contracts for many years. In addition, the growth of the public sector workforce will impose a huge pensions burden on future generations - almost certainly much larger than is provided for in the public accounts. (The official figure for the liability was £530bn in March last year, while a new pamphlet from the Institute of Economic Affairs, the free-market think-tank, puts it at £1,025bn.)

If there was a case for an independent monetary body - the Bank of England's Monetary Policy Committee - then there is also a case for an independent fiscal body, which would scrutinise the public accounts and set broad parameters to ensure spending and tax levels were consistent. Governments would be free to tax and spend as they felt appropriate, but they would have to do so within an independent framework - not one set and monitored by the chancellor of the day.

Granting the Bank independence to set monetary policy is often hailed as this Chancellor's best decision. It certainly removes any opprobrium over higher interest rates.

The model for fiscal policy would have to be different as it is much more complex, but the politics are similar. At some stage in the next 20 years, I expect another chancellor will see it is in their self-interest to pass the blame for higher taxes on to an independent fiscal body.

So gentlemen don't prefer blondes...

First it was happiness, now it is dating. The economics of different aspects of human behaviour have become a fruitful area of research, and now we have some work by Michèle Belot and Marco Francesconi of the University of Essex on the advantages and results of speed-dating.

They looked at data from one of the biggest UK private agencies - some 1,800 women and 1,800 men taking part in 84 speed-dating events between January 2004 and October 2005. The results were much as you might expect: women liked men who were young and tall, while men liked women who were young and thin. But the characteristics that both genders found attractive weren't random but were related to education and occupation.

In other words, age, height and occupation correlate with social class, while eye colour or hair colour don't. So gentlemen do not prefer blondes, but they do care about social background.

The advantage of speed-dating is that the sorting out takes place on a huge scale. But it does sound very hard work. For those of you who have not indulged, it works like this. People sit at assigned tables, with the women staying in the same place and the men moving around. Each "date" lasts three minutes, after which the men have 30 seconds to get to the next table. After eight dates, the session stops, and people can have a drink and relax. Usually there are three sessions and then candidates put their bids into the agency for people they would like to see again.

Does it work? Apparently 38 per cent of the men and 46 per cent of the women don't choose anyone but they can return free for another go. Most do, so it must seem worthwhile. The clear advantage over other forms of dating, such as on the internet, is that both parties at least know for certain what the other person looks like.

And finally, speed-dating does pass that other market test: it is a growing industry. So it must be serving an economic purpose.

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