The gloom offensive has two themes. The first is that the markets should not get carried away by the strength of economic recovery this year and conclude that no more need be done to tackle government borrowing in November's Budget. Mr Portillo argues that taxes may still have to rise again, in large part because they can be used to bear down on borrowing more quickly than extra spending cuts.
The force with which this message is being hammered home no doubt owes much to the Treasury's failure to guide expectations successfully ahead of the last two Budgets. The 1992 Budget managed to disappoint by including both unexpectedly small pre-election tax cuts and a higher-than- expected public sector borrowing requirement forecast, despite unprecedented massaging of its internal forecasts ahead of publication. To the surprise of Treasury officials, this year's March Budget also left a bad taste, with the markets more alarmed by the pounds 50bn PSBR forecast for this year than they were reassured by plans for tax increases in the next two.
Mr Portillo's current ubiquity suggests the Treasury does not want to disappoint again, especially in the first Budget of an as yet untarnished Chancellor. We are either being prepared for the worst or - perhaps more likely - being set up for a pleasant surprise.
The second theme is more long- term, and aimed at Tory MPs and the Cabinet more than at the markets. Mr Portillo's comments and yesterday's Bulletin article point out that many of the upward pressures on public spending are long-term and will not be solved by economic recovery. Debt interest is rolling up, numbers in higher education are rising, large capital spending projects are bunched together and social security spending is rising at an underlying 3 per cent a year on top of inflation.
The message is clear: if the Government is to restore its largely undeserved image as a tax-cutting party in time for the next election, uncomfortable decisions on spending will have to be taken soon. The Government's decision to carry out a long-term review of the public sector's proper bounds is welcome, but significant savings are bound to be unpopular.
It is still difficult to see enough hard work on spending being done in the coming year or two to give pre- election tax cuts a sound economic justification.Reuse content