For the IMF's blessing comes at a particularly useful moment. A couple of miles due east of the Treasury, there has been a rising rumble of hostility to Mr Brown's Budget. It has echoed through banks and insurance companies, and become the common conversation at wine bars and Conran restaurants. It bubbles from the inner conclaves of the almost-independent Bank of England, whose monetary policy committee is not wildly enthusiastic about the Budget.
In brief, the criticism is that Mr Brown should have raised taxes on consumers straight away, so checking the boom and preventing steady rises in interest rates. That would have reined in an unsustainably strong pound and helped prevent a very hard time for British exporters, the effects of which will come next year ... just when the tax rises bite. Instead, his City critics argue, he has done things the wrong way around. The opinion- forming classes may have a better August as a result, using the strong pound to buy fine meals in French market towns; but the cost will be borne in lay-offs and misery during 1998. On this view, the Treasury's explanation that this is a Budget for the long term cuts no ice: the best way to have a successful long-term policy is to get it right in the short term, time after time.
Let us leave aside, for the time being, the rich ironies in all this - City critics attacking a Labour chancellor for not being tough enough on the middle classes, while he defends himself by pointing out how tough he's being on public spending. More to the point, who's right? We should note, first, that the City is not speaking with one voice. There are many senior people who take Mr Brown's side, arguing that the fiscal tightening needed to reverse the interest rate rises would have had to be huge; and that the critics underestimate the effect of the tough control over public spending. However, the IMF also goes out of its way to warn of the dangers of the consumer boom, even suggesting new consumer taxes as one solution. Shrewd observers will remember that the argument about the right mix of policy, as between interest rates, taxes and public spending, never ends and is never resolved.
All that said, it is clear that the pound is unsustainably strong. It is clear too that public spending is horribly tight. And it is clear that the middle classes, particularly those with private pensions and substantial mortgages, are going to have a tougher time in the 12 months ahead, however much they enjoy their foreign holidays in the meantime. The changes to mortgage interest tax relief, which would have hardly been noticed by many had interest rates been stable or falling, will smart in the present climate.
So, after an early period during which the Chancellor of the Exchequer has been a darling of the media and popular in the country, gaining applause for his move on the Bank of England, and warm reaction for his Budget, Mr Brown is likely to enjoy the next phase rather less; and he won't be the only one. There will be pay problems in the winter. Some of those who voted Labour for the first time in May will be wondering whether they were right by next spring. And the pound may indeed be causing some lay- offs.
We think, however, that this is pain that must be gone through; and that the Chancellor will emerge looking stronger, not weaker. The early stages of the new regime for a more independent Bank were always going to be tricky. With its fiercely anti-inflationary mandate, it is more likely to keep policy too tight than too loose. It will make mistakes. So the first few "independent" hikes in base rates will cause opposition politicians, and some Labour ones, to protest that this was an economic as well as a constitutional mistake.
Then things will settle down. We will get used to a new world in which rates are not set by politicians - the same world in which most of the rest of the developed economies live. Tight though the expenditure plans are, the Treasury's early determination to keep public spending under firm control will pay off later in the political cycle. If Mr Brown can reverse the old trend, whereby Labour governments splurged early and were then obliged to raise taxes as the election loomed, he will be doing his party a signal service.
More important than any of that, however, is the fundamental Labour pledge to improve education and training. It is on that, as well as more conventional Treasury policies, that the Chancellor would wish to be judged. We remain sceptical about whether sufficient resources have been ruthlessly channelled that way; but it will be years before we really know. In the meantime, a steady shift away from what has been called the middle-class welfare state, and towards schooling and the excluded, will be welcome. Mr Brown needed the IMF's blessing. He also needs the support of middle-class voters. But he is more likely to get that support, and keep it, by convincing them that he has a firm, long-term policy for low-inflation, high-education growth, than by trying to give them an easy 1998.Reuse content