By adjusting the timescale of the economic cycle Gordon Brown has done the equivalent of missing a week or two at Weight Watchers. For my temporarily lapsed friend, the other options were giving up his diet or turning up to be weighed and facing the fatally off-putting humiliation on the scales. For Mr Brown, the other short-term options were putting up taxes or cutting back on public spending. Wisely, Mr Brown chose the least worst option of changing his rules in order to stick to them.
Political opponents and business leaders shake their heads disapprovingly. They regard the manoeuvre as a moment of great significance. It will not prove to be so. Combining prudence with a purpose was never going to be easy. Immediately after the 1997 election, the focus was almost entirely on prudence. Purpose hardly got a look in. It was not even clear what the purpose was.
For several years after that, prudence and purpose worked together in a conveniently neat harmony. Golden rules were met while public spending grew. This was a substantial achievement. Mr Brown hemmed himself in by giving away power to the independent Bank of England and by his self-imposed rules. That was the brilliant contrivance, the recognition that only by giving away power and flexibility would he be given the political space to increase public spending.
Now, Mr Brown leans a little towards imprudence in order to save the purpose. There is nothing unusual in such expedient shifts away from apparent orthodoxy. In the early 1980s, Margaret Thatcher adopted policies that blew apart her much proclaimed medium term financial strategy. As she hailed the rigid targets, political expediency demanded a looser monetary policy. The only surprise is that Mr Brown has managed in the past to get away without making transparent adjustments to economic policy.
Of much greater political significance is the announcement that the public spending review is to be postponed for a year until the summer of 2007 to take effect in 2008. The postponement tells us little about the timing of Tony Blair's departure from power, but a lot about the possible tensions leading up to it. In Downing Street, the focus is on handling the short-term crises arising from the bombs in London. Beyond that, Mr Blair seeks to depart on a political high, his task as Prime Minister more or less completed. But if Mr Blair takes a bow with his mission accomplished in a year or two, where does this leave the future Government? The answer comes partly with the 10-year review of public spending.
The revised timing means that the review extends well beyond the likely date of the next election. Mr Brown has an opportunity to shape the course of the end of this parliament, the political dynamics of the next election campaign and what follows if Labour wins again. It will therefore be the most important political event of the third term.
I am told that several weeks ago Mr Brown proposed a postponement of the spending review to Mr Blair. The Chancellor also suggested a more fundamental and longer-term review than was originally planned. Initially, the Prime Minister was wary and delayed making a decision.
The reason for his unease is obvious. Mr Brown was proposing a review of policies and priorities that included a period of time when Mr Blair would have definitely left Downing Street. This is the significance of the new timing and scale of the review. We do not know precisely when Mr Blair will resign. I doubt if Mr Blair knows for sure. But he has stated he will have departed by the time of the next election.
Here we have an example of the current ambiguous political situation. Mr Blair's original wariness in relation to the postponement of the spending review suggests that the transition to Mr Brown could become dangerously tense. His ultimate acceptance of Mr Brown's proposals indicates that Mr Blair is sensitive to the need for a smooth handover.
The sequence is emblematic. At this early stage of the third term, Mr Blair and Mr Brown seek a harmonious switch of leadership. In different ways, both of them fear also that this might not happen.
How will Mr Brown address the challenge of the next review? It will take place in a less benevolent context than recent spending rounds. The Government's own figures suggest the rate of increase in public spending will start to fall, which is one of the many reasons why Mr Brown was right to amend his golden rule to protect current levels of expenditure. There is still an irrational myth in Britain that public investment is a reckless waste of money, and the fact that Sweden and France have better health care is unrelated to their level of public spending.
Almost certainly, health and education will do relatively well in a 10-year spending review, which means other departments will be under even greater pressure to find savings. This will not be easy as the Treasury considers the implications of reviews on local government finance, transport and pensions, and the costs of the 2012 Olympics and the growing importance of homeland security.
Mr Brown should turn the challenge of a harsher economic climate into an opportunity by recasting the debate on public spending and how we pay for it. Debates about public spending are far too insular. In private, ministers put their case for more money. The Treasury and Downing Street decide in similar secrecy. Outside these private exchanges, a noisy contradictory debate takes place in public.
With good cause the CBI calls for billions more to be spent on transport in Britain. Yet at the same time, business leaders fume when taxes and borrowing are increased. So how does the CBI suggest that an improved transport infrastructure should be financed? Some right-wing newspapers occasionally campaign for increases in nurses' pay and at the same time scream with fury about higher taxes to pay for the rise. Everyone wants better public services and yet disapproves of tax rises. Can Mr Brown create a new progressive consensus that agrees on the priorities of public spending and how this should be paid for?
Probably not, but it is worth a try. There is much more at stake than the political futures of Mr Blair and Mr Brown. Over the next 10 years, the Government risks spending too little rather than too much.Reuse content