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

News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
News
Morrissey pictured in 2013
people
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
filmReview: Sometimes the immersive experience was so good it blurred the line between fiction and reality
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
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

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices