Brown beats a brilliantly executed retreat

Comment: Donald MacIntyre
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To the extent that this was a retreat, it could hardly have been more brilliantly executed. The problem of how to show that this was both a listening government and a strong one was always going to be difficult after the fuel protests gave it the worst few days since 1997. Yesterday, Gordon Brown came close to squaring that circle.

To the extent that this was a retreat, it could hardly have been more brilliantly executed. The problem of how to show that this was both a listening government and a strong one was always going to be difficult after the fuel protests gave it the worst few days since 1997. Yesterday, Gordon Brown came close to squaring that circle.

In his pre-Budget statement, the Chancellor tore the intellectual heart out of the two hostile campaigns that have dogged him since last March. One was the deep and widespread unrest about the high cost of petrol; the other was the equally deep sense of indignation at the 75p increase in the state pension which the trade unions and pensioners' campaigners had used to underpin their call for pensions to be linked to earnings and not prices.

For both problems Mr Brown personally bears much of the blame. But in the Commons yesterday he was rewarded with just as much credit for the way he extricated himself and the Government.

Pensions first, because it is clearer cut. Mr Brown has managed to resist that call - which resulted in a humbling defeat for the Government at the Labour Party conference - by ensuring that a now substantially increased universal basic pension will indeed continue to be uprated in line with prices and not earnings. But at the same time he has ensured that a majority of pensioners, not only the poorest but the nearly poor and those on middle incomes, will have at least a portion of their annual rise in incomes linked to earnings.

This may not satisfy Baroness Castle and Jack Jones. It will not, for example, be lost on those two doughty campaigners that the Treasury has been more generous - by a factor of about £500m - to motorists and hauliers than it has been to the pensioners. But it does mean only the admittedly growing numbers of pensioners with incomes of more than £20,000 will be wholly untouched by the link. And even they will benefit from the cash rise of £8 per week for a single pensioner and £12.40 for a couple which Mr Brown announced yesterday for the next two years.

On fuel, the Chancellor announced a solution to which the word "ingenious" hardly does justice. No, he did not announce an across-the-board decrease in fuel duty demanded by the hauliers and farmers. Instead, and in addition to the expected package to ease the competitive international pressures on hauliers and scrapping the vehicle licence for tractors, he accelerated an environmentally attractive cut in the duty for ultra-low sulphur petrol. This was a move he had already started and he now expects to lead to the swift replacement of normal unleaded fuel. At the same time, he cut £55 off the vehicle excise duty for about 5.4 million cars. If anyone doubts that this move has a forthcoming election in mind, the Chancellor shamelessly listed some of the models which will benefit - "Focus, Golf Astra, Escort and the Rover 214".

The opening section of Mr Brown's hour-long speech, the "not Nigel Lawson" passage, was a lengthy hymn, undoubtedly welcome to the financial markets, to the virtues of not frittering away the late-Eighties surplus in the way that the Thatcher government had done. This was the most overtly political statement of its kind. But it was made possible because the Chancellor has ensured he had the funds at his disposal, in a way no previous Labour government would have done. (It was hardly noticed that he also managed to spend £1bn to bring business investment to stricken areas of high unemployment.)

To the charges that the Government has caved in to the fuel protesters, there are a number of defences, some more persuasive than others.

The first is that the switch to the low-sulphur fuel is genuinely environmentally sound. The second is that the concessions yesterday go nowhere near the impossibly extravagant demands of the protesters. And indeed, right on cue, some of the protesters' leaders helpfully complained that Mr Brown had not done nearly enough.

But the third defence is the least easy for ministers to admit but probably the most accurate. The problems that the Chancellor addressed yesterday actually pre-date those attempts at extra-parliamentary force majeure which dried up fuel supplies back in September. It had been apparent from the early summer that the high cost of fuel, particularly for private motorists in rural areas, would cost Labour dear in an election. This isn't to say the package would necessarily have been as generous if it had not been for the protests. But it is to say that the problem would have to have been addressed even if they had not taken place.

This goes to the heart of the real rationale behind yesterday's pre-Budget statement. Ministers, the Chancellor among them, have come to realise that it wears very thin to justify high taxes, especially high, indirect taxes which have the most impact on the least well off, on the grounds of expenditure needed for hospitals and schools if the fruits of that expenditure are not yet visible. It is that electorally dangerous credibility gap which Mr Brown was addressing yesterday every bit as much as the short term and frequently self-serving complaints of many hauliers and farmers.

In time, so New Labour hopes, the voting public will start to fully appreciate what the expenditure can achieve. But it hasn't happened yet. And in those circumstances a popular correction was necessary.

Across the Atlantic, the centre left has had a short, sharp shock to remind it that successful economic management cannot alone be guaranteed to win an incumbent administration re-election. In such circumstances response to serious popular unrest - rather than merely thuggish protest - becomes an imperative. Sometimes, as Tony Blair once put it, "you have to kill your enemies with cream". Was it not that guru of the US system, Dick Morris, who predicted that the British government would have to bow before widespread anger about the cost of fuel?

In doing so now, the Government has almost certainly bought itself out of real trouble. For all the cries of foul from protesters' leaders, the public will not tolerate protests which challenge the democratic way by threatening hospitals and supermarket shelves.

There is something in the Tory gibe that this was as much a post-Budget statement as a pre-Budget one - to correct the problems caused by the last one. But Michael Portillo's denunciation of the Chancellor fell pretty flat, even on the Tory benches.

This was perhaps the most crucial speech Mr Brown has made since becoming Chancellor. He needed to deploy all his formidable command of the Commons. And he did so.