View from City Road: Balancing act by a political Chancellor

Click to follow
The Independent Online
Kenneth Clarke has always been happy to admit that he is a political Chancellor rather than an economic one. The summer forecasts he unveiled yesterday at the Treasury - for which he, rather than his officials, is formally responsible - bear out that description.

Mr Clarke faced a delicate balancing act. On the one hand he needed to give the hard-pressed Tory backbenchers something to cheer about, but on the other he had to avoid creating the impression that everything was so rosy that tax cuts and higher public spending could be showered forthwith upon a grateful nation.

To please the backbenchers there are a marginally more optimistic prediction for growth and a significantly lower forecast for inflation than in November's Budget. Given the way events have turned out these forecasts seem perfectly plausible, although his prediction for growth may border on the pessimistic and that for inflation on the optimistic.

Lest they get too carried away, however, the Chancellor has been deliberately pessimistic on Government borrowing. His Budget prediction for the public sector borrowing requirement in the next two years is cut by only pounds 1.8bn and pounds 2.4bn respectively.

Such downbeat forecasts plainly make good political sense, since they allow the Chancellor to keep up the pressure in the public spending round and pour cold water on demand for the second rise in VAT on fuel to be abandoned. In economic terms, however, they are surely too cautious - mainly because they assume that the Treasury's spending control total stays at the level set in the Budget. Lower inflation means that the same amount of goods and services can be bought for less.

On economic grounds Mr Clarke would find it hard to justify tax cuts now with consumer spending still at record levels as a proportion of national income. Instead, he seems to be banking his room for manoevre for a year or two hence. As a political Chancellor, Mr Clarke seems to be laying the groundwork for a last-minute vote-catching giveaway.

Comments