Machiavelli's finest pupils are Tony Blair and Gordon Brown

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The Independent Online
IN The Prince , a book which shares with Das Kapital the distinction of being one of the most discussed and least read in European literature, Machiavelli has something to say about public spending: too much of it means a ruler "will always use up his resources and he will be obliged, eventually... to burden the people with excessive taxes and do everything possible to raise funds. This will begin to make him hateful to his subjects, and... he will not be much esteemed by anyone..."

This is rather a good moderniser's account of what happened to the 1974- 79 Labour Government. (Even without adding the words "including calling in the IMF" at the end of the first sentence in the quotation). It conjures vividly the spectre which haunts Gordon Brown - and for that matter Tony Blair - more than any other. And it certainly summarizes why both men thought - and think - that broadly maintaining the austere public spending regime laid down by the previous Tory Chancellor increases rather than decreases their chances of winning the all important second General Election.

The humiliatingly short shrift given to union leaders this week, not to mention Gordon Brown's studiedly orthodox speech in the City, both serve to underline the core belief at both famous Downing Street addresses that Labour's endemic habit of spending first and paying later was part of what makes it the only political party in this century never to have served two full terms.

And as with fiscal policy, so with monetary policy. Don't suppose for a moment that yesterday's increase in interest rates will have been unwelcome to either Brown or Blair. OK, the pound went up again. Yes, manufacturing industry will wince. Sure, some mortgage payers will shudder.

The fact is that both men would have liked the Bank of England to move faster and more sharply towards a rise which the markets could credibly judge to be the last. Brown didn't sacrifice, as his first action in office, the cherished power of politicians to manipulate interest rates for reasons of short term popularity, only to find that the Bank behaved more politically than the politicians.

Indeed there has been audible irritation in parts of Whitehall at those members of the Monetary Policy Committee who stray, for one reason or another, from the narrow remit of counter-inflation policy. This is especially because there is a direct connection between policy on rates and that on spending.

The Government's answer to the Liberal Democrats' complaints about its alleged miserliness is that may need surplusses not for a pre-election war chest but in order to weather a recession, made all the likelier if the Bank turns out to have misjudged things. Which is another reason for the Chancellor to show extreme prudence. Yes, but within limits. The Chancellor and Prime Minister may not be quite as immune to short term political gratification as they look.

Part of what makes the independence of the Bank of England such a master- stroke is the way in which it has protected the government from bearing the brunt of the attacks over the level of sterling as a result of interest rate rises which both Chancellor and Prime Minister had decided well before the election would be necessary. That rates might have gone up even faster had they had their way only underlines the point; would Labour's poll lead be as high as it if the decisions had been taken at the Treasury?

Ministers have no such protection against criticisms on spending. They may scorn the idea that the poor turnout at the local government elections, and, rather more dramatically, the opinion poll rating of the Scottish National Party, are the result of the Government's fiscal toughness. But they are omens which cannot wholly be ignored. The SNP, beginning a hugely upbeat conference in Perth today, are current favourites to win power in assembly elections only a year away.

So it is just as well that the outcome of the Comprehensive Spending Review next month will not be quite as austere as it has looked at times this week. It's already well known that Education and Health will be significant net gainers from this huge Whitehall-wide exercise of setting the priorities for the next three years. The Defence budget, though trimmed, will not yield up all the treasures Brown would have liked it to. But elsewhere there will be some painful losses to compensate for the gains. Brown already knew last week that he had released some serious money for Frank Dobson and David Blunkett without ditching his precious surpluses.

But they are not alone. Brown's speech, in which he re-emphasised the "golden rule" that public borrowing will be used only for investment, was widely interpreted as essentially negative. But I suspect part of its purpose was subliminally to remind the markets that it will not be a breach of his self imposed discipline if he announces public funds for capital infrastructure investment which could - even if only to a limited and temporary extent - slow the rapid rate at which borrowing is falling. Public transport - of which Wednesday's modest pounds 140m (and rather less modest pounds 3.8bn loan guarantee) for John Prescott's Channel Tunnel Link is likely to be a harbinger - will almost certainly be the main beneficiary.

The war chest jibe assumes that Brown and Blair intend merely to accumulate surpluses until unleashing a controlled spending spree just before the general election. But it is doubtful that they would think that politically wise, even if it were not unduly cynical. The electorate shows little sign of wanting Brown to abandon prudence. But it is ready for a bankable downpayment on the Government's promises. Even Machiavelli would have approved of that.