Outlook: Big question for the Iron Chancellor

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The Independent Online
The news on the Government's finances has been so good it is starting to seem too good to be true. Happy is the chancellor who meets his spending targets without apparent difficulty, can afford to pay for some cherished Budget giveaways like the 10p starting rate of income tax, and can still predict a big enough improvement in the borrowing requirement that the Liberal Democrats, Britain's last tax-and-spend party, can accuse him of building up a war chest for the next election.

In fact, the war chest is a red herring, diverting attention from the fact that the Labour Government inherited a truly awful position from the Tories. The national debt had doubled under John Major's premiership, and the Government is still borrowing billions of pounds at a stage of the economic cycle when it should be in surplus. The time to talk about war chests is when the surplus is actually in the bag.

For the news probably is too good to be true, despite Gordon Brown's genuine and welcome commitment to prudent fiscal management. One worry is what will happen to tax revenues as the economy slows down. The other serious question mark hangs over the spending side of the equation. While there can be little doubt that the Chancellor has an iron grip over expenditure by Whitehall, the Treasury's control over local authority spending is still far from secure. There are big pressures in both education and public sector pay, much of which falls under local authorities. There are indeed signs in the emergence of a gap between the spending recorded in the monthly PSBR figures and much higher expenditure recorded in the quarterly national accounts figures, that control of non-departmental spending has already weakened since 1 May.

There is no reason for alarmism. Within a few months Labour has proved to be better than the Conservatives at running the public purse. But even this Iron Chancellor can not eliminate the big question that lies behind all others when it comes to government spending; how do we pay for the improvements in public services so many people want when voters are so resistant to higher taxes? The Chancellor is unlikely to have the answer when he gets up to deliver his Budget speech on 17 March.