Letter: Brown lets the boom roll on

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Sir: Gavyn Davies (column, 7 July) says that "in the Budget run- up no one seemed to be arguing for anything remotely on this scale [a pounds 9.5bn-plus increase in consumer taxes]". Well, I did. Both in these columns, in a comment on the Green Budget, and also in Tribune (16 May). Indeed, I argued for a take-out of pounds 15bn on the grounds that a booming economy should produce a surplus on the Budget.

What the Chancellor seems to have done is taken out less than half of this amount by taxation, left private spending to boom and reduced public spending, in real terms, by upping the inflation forecast. This, as Davies says, is deflationary. But there is a lot of difference between cutting public spending and cutting private spending. The latter would have cooled the economy down and given the Bank a reason for not going hard on interest rate increases, thus leaving the pound to come down gently from its high perch. The former will cause misery in the public sector services and inflict hardship on the worse off while still leaving the economy overheated.

Interestingly enough, the Treasury seems to be forecasting a recession in manufacturing output growth, which is put at 0.75 per cent in 1998, half of its miserably low figure in 1997. The Red Book has a projection that real disposable income will grow at only 1.75 per cent in 1998, half of its 1997 level. Did the Treasury thus know that leaving the consumer happy will hurt the industrial economy but that this was the best it could do?


(Professor Lord Desai)

The Centre for the Study of Global Governance

London WC2