The bluffer's guide to the Chancellor's proposals

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Yesterday's pre-Budget report may already be today's weighty doorstop, but it would be unwise to think none of the issues it raised will come up at your next dinner party or pub quiz. So to avoid appearing ill-informed in front of your boss/partner/client/mate, here is a quick bluffer's guide to what the cognoscenti know as the PBR.

Q: I thought the Budget was in March, why did we need another one?

A: It wasn't a budget, where taxes and fuel and booze duties get set. It was a sort of dry run, just to keep the voters up to date on the state of the economy and perhaps warn them of one or two things that might come up in the Budget.

Q: So what happened to the old autumn statement when the Government used to announce spending plans?

A: Well, do you remember a man called Norman Lamont? Thought not. He delivered the last autumn statement in 1992. After that Kenneth Clarke unified the tax and spend into one November statement. Then in 1997 Gordon Brown came in, switched the Budget to March-ish and invented the PBR.

Q: So if it doesn't change taxes or announce new spending, what is the point?

A: The main point is for the Chancellor to update his forecasts on economic growth and the finances.

Q: You mean this is when he goes on and on about how Britain has had the longest period of economic growth since the Industrial Revolution, weathered the downturn better than any other major economy - especially Europe's?

A: That's a bit cynical, but yes. Gordon Brown looks odds-on to be the next Labour leader and is anxious to preserve his Iron Chancellor nametag. It also gives those clever Johnnies in the City of London a chance to see if he has cut his growth forecasts and raised his public deficit numbers.

Q: Does that matter much? Everyone I know is in work and I know the shops are empty but, hey, who goes to a shop anymore?

A: That is true - we are enjoying a pretty solid economy at the moment, but a lot is linked to government spending. Someone in the pub last night said that if you strip out government spending over the next couple of years there's not much growth in the economy. But it does matter, for another reason.

Q: Is it that golden rule malarkey?

A: Yes. Back in 1997 Gordon Brown drew up two rules he said he would stick to and which would show he wasn't like previous Labour chancellors who spent like Billie-o and then had to hike taxes or run to the IMF for a bail out.

Q: I'm going to regret this, but remind me of the rules.

A: One says, basically, that he should keep the total stock of public debt below 40 per cent of the annual income in the economy. The second - the golden rule - says that over an economic cycle he can only borrow to make long-term investment and can't borrow to fund day-to-day spending.

Q: Is he meeting these rules?

A: The first one, he's meeting easily. But the Tories say that if you include the money needed to bail out Railtrack and the billions required to pay for the pensions of government workers over the years, then he isn't. But that idea hasn't caught much attention - yet.

Q: And the golden one?

A: Now that is difficult. First of all you have to decide what the economic cycle is. The Government chooses that and says it is from, roughly, 1999 to 2006. Then you take all the surpluses and deficits and tot up the total and...

Q: That's easy - then you get a number and it's either a plus, and you've passed, or a minus, and...

A: You interrupted ... but you're right: a lot of people would say that. But the Government says that because the economy is growing it's only fair to measure it as a percentage of the economy. So in March he said he would stay within the rule with a margin of 0.1 per cent of GDP or £6bn.

Q: That sounds a bit fishy to me. Does anyone agree with him?

A: Not many people do, and some think this way of defining it came late on to the scene - although the Treasury won't have any truck with that. Perhaps one way of looking at it is to think of your own bank account. Suppose the net flows over seven years are +£10, +£8, +£5, -£8, -£10, -£15 and -£20 then you have an overdraft of £30 and your manager would write asking for the money.

Q: He has. What do I do?

A: You tell him you received a 30 per cent pay rise in the final year. Here's the science bit. You work out the balance as a percentage of the income over the last seven years, add up the percentages and then multiply that by your final income and - hey presto! - a surplus.

Q: I don't fancy my chances. But what else happened?

A: Just a small matter of raising a net total of about £2bn in tax from the economy.

Q: But you said this wasn't the time they raised tax.

A: True - but it's Gordon's party so I guess he can change the rules if he wants to. Anyway, they won't feel like tax rises to us - £2bn extra on North Sea oil, £400m of tax loopholes closed to put accountants out of a job and an old-fashioned anti-feudal windfall tax on landowners who cash in when they win planning permission. And if you're a pensioner you should be a bit better off.

Philip Thornton