Michael Brown: It may not be as rosy as it seems in Capability Brown's garden

'The stage is surely set for a slow-down in the economy duringthe next Parliament'
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The Independent Online

It was the Liberal Democrats' Treasury spokesman, Matthew Taylor, who best summed up Gordon Brown's pre-Budget statement: "The Chancellor's Labour predecessors introduced mini-budgets in times of financial crisis because of boom and bust. This Chancellor introduces them at times of political crisis to introduce policies of bust and boom."

It was the Liberal Democrats' Treasury spokesman, Matthew Taylor, who best summed up Gordon Brown's pre-Budget statement: "The Chancellor's Labour predecessors introduced mini-budgets in times of financial crisis because of boom and bust. This Chancellor introduces them at times of political crisis to introduce policies of bust and boom."

This week, the Chancellor solved a political crisis wholly of his own making. That he has dug himself and the Government out of the hole of their own creation cannot be doubted. And his usual presentational skills left his Tory opponents flat-footed as he turned adversity into political triumph by buying off the pensioners and the fuel protesters.

Michael Portillo, the Shadow Chancellor, had an impossible task in coping with Flash Gordon. But the truth of the matter is that while Mr Brown may have successfully sown and watered Labour's general election plant, which will flower next spring, he has also nurtured some weeds that could be his undoing at the subsequent election in 2005 or 2006. The challenge for the Tories is how to get through the traps in the undergrowth that Capability Brown's gardening has set for them in the short-term, to capitalise on the potential disaster waiting to overtake Labour in four years' time.

I fear that there is probably little that the Tories can do to prevent a second term for Labour. The clock is ticking with less than 150 days to the expected dissolution of the present Parliament if - as now seems certain - an election is to be held on 3 May. Mr Brown presumably also has one more throw of the Treasury dice to bribe a few more electors with their own money when he presents the actual Budget next March.

There are two long-term opportunities presented by Mr Brown to the Tories. First, he has more or less given up on the argument that the tax burden is not rising. The Government now appears to acknowledge, in the pre-Budget report, that the tax burden will rise to 37.5 per cent of the national income next year, but this is clearly on the optimistic side of Treasury forecasting. John Hawkeworth of PriceWaterhouse-Coopers has put the figure for 2001-02 at 38.5 per cent. Sadly, however, this is not going to be of much help to the Tories until after the election. Stealth taxes are undoubtedly still ratcheting up this figure. But since Mr Brown has neutralised the fuel tax issue, it is unlikely that enough voters will clearly see the pick-pocketing nature of his policies to make much of a difference come the election.

Second, Andrew Smith, the Chief Secretary, let something important slip about the long-term trend in the public finances. By being too clever by half in his denunciation of Mr Portillo's recent proposals, Mr Smith implied that the Government's own plans envisage a deficit in three or four years' time. He has unwittingly done the Shadow Chancellor a favour by indicating the potential difficulty in affording the Government's public expenditure plans unveiled before the summer recess. Again, however, it is difficult to see how Mr Portillo can make much of this, in the short term, with the public still (wrongly) convinced of the need to solve improvements in public services by recourse to vast dollops of taxpayers' money.

But the stage is surely set for a slow-down in the economy during the next Parliament, causing a reduction in tax receipts and unexpected increases in social security payments. The public finances will eventually require further tax increases after the election if a deficit is to be avoided. Interest rates may rise.

But the Tories have the chance - now - to set out the fundamental case for their argument that Labour's increases in public expenditure are ultimately unaffordable and are unlikely to result in any improvements in the delivery of public services. Unfortunately, for the moment, they continue to insist on playing on the ground set by Mr Brown.

The most obvious example is their decision to match Mr Brown's largesse on the National Health Service. But they should be prepared for the failure of throwing money at the NHS to make anything but a marginal improvement. Expectations will not be met. No example of shed-loads of taxpayers' tenners failing to deliver the goods is better illustrated than yesterday's damning report from the National Audit Office about the Millennium Dome. Already, reports are beginning to emerge of NHS bureaucrats, punch-drunk on public cash, coming up with grandiose schemes which will do nothing to alter the fundamental flaws of the NHS.

So my advice to Mr Portillo is to do everything he possibly can to avoid playing on the Labour turf. At the moment, he gets the worst of all worlds. By matching Labour's health plans - as well as hinting at tax cuts - he falls into the trap of being charged with a "£16bn black hole" in his sums, and he therefore suffers from a credibility problem.

It may be that the Shadow Chancellor is frightened to challenge Labour's plans for high public expenditure. But by accepting the broad outline of their plans, he is making it more difficult to attack, after the election, the inevitable failures of such expenditure at the very moment when he needs to be able to say, "we warned you and the country that more money was not the answer."

It is now time, therefore, for the Tories to oppose, in principle, the concept of relentlessly increasing public expenditure. In this way, they will strengthen their case that taxes have risen and should be reduced. This week's quick fixes will probably work for Mr Brown next May, but that is no reason for the Tories to give up on their fundamental philosophy.

The case for Tory tax cuts will ultimately be accepted, once again, by the public when they eventually feel the pain and the scale of the Chancellor's cumulative tax hikes. But this case will be undermined in the future if the Tories acquiesce in the broad thrust of Mr Brown's expenditure plans. Since they face an uphill struggle next May, they might as well plan now to be in pole (or should it be poll?) position to reap the inevitable harvest when it all begins to turns sour for Mr Brown in a few years. To borrow one of Mr Brown's soundbites, it is time to plan for the long term.

mrbrown@pimlico.freeserve.co.uk

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