Outlook: Budget surpluses

Outlook: Budget surpluses

ONE OF those pleasingly familiar British rituals seems to be happening before our eyes again. The Chancellor of the Exchequer, getting a warm feeling about the good behaviour of the economy under his wise guidance, announces there is greater potential for growth. However, aware that there is a link between sensible economic policies and a favourable economic performance, he insists there will be no let up on tough controls of the public finances and the battle against inflation.

Gordon Brown would do well to revisit Nigel Lawson's memoirs, and read up on the period leading up to the boom of the late 1980s. Headline inflation was low, producer price inflation at its lowest for decades. Growth was picking up after a pause and unemployment was falling. The one cloud forming on the horizon was a surge in London house prices. Still, real interest rates were high and the state of the government finances was improving rapidly.

During the subsequent boom, the government went on to enjoy a surplus of revenues over spending in four successive years, from 1987/88 to 1990/91. Eventually the Chancellor succumbed to the desire to cut taxes dramatically, a political priority for the Conservative government. Initially the impact was partly offset by tough spending controls, but these too were relaxed ahead of the 1992 election.

Gordon Brown has rather different political imperatives and he is under pressure from Cabinet colleagues to use the unexpected fiscal bonanza to increase spending on key public services. In another bit of much-loved ritual, he is firmly resisting their raids on the likely budget surplus. "Tough" was the word he used most frequently in the speech in New York.

With time, the Chancellor will no doubt find he does, after all, have the cash for a few spending pledges. But he is right to resist an all- out assault on the fiscal rules and the three-year spending plans he has set for himself. Tax revenues and spending are highly sensitive to the state of the economy. The pattern is one of surprisingly large surpluses during booms and equally unexpected deficits during busts. Lord Lawson found his four years of surplus transformed (under his successors) to the biggest deficits since the mid-1970s.

This is precisely the point of setting the "golden rule" (that the government can only borrow to invest) for the course of an economic cycle. It recognises that surpluses are needed in good times to offset deficits in bad. Mr Brown's supposed warchest will vanish faster than summer snow when the economy eventually slows. His cabinet colleagues would do well to remember this as they hammer at his door for the lid to be lifted on public spending.

Outlook@independent.co.uk

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Sport
David Silva strokes home his and City's second goal
football
Arts and Entertainment
a clockwork orange, stanley kubrick
film
Extras
The Tesco Hudl2: An exceptional Android tablet that's powerful, well-built and outstanding value
indybest

News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricket
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drinkAuthor DBC Pierre presents his guide to the morning after
Life and Style
food + drink
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

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

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

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
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