Squaring the spending circle

8 Dec 06
PETER RIDDELL | Gordon Brown’s Britain will be serious, busy and bracing.

Gordon Brown’s Britain will be serious, busy and bracing.

There will be no consolidation after the Blair years, nor any hint of the frivolity of Cool Britannia.

The Pre-Budget Report on Wednesday was another instalment of Brown’s pre-premiership manifesto. This can no longer be described as a job application since there is no real doubt that he will move into 10 Downing Street next summer.

Rather, he gave a clear outline of his likely programme in office. Brown talked about the challenges of globalisation, intensified competition, education and skills, demographic shifts, climate change, and security fears and terrorism.

The PBR was always going to be much more than an autumn update on the Budget economic forecasts. In the preceding few days, there had been a deluge of reports from the independent reviews he had set up.

So after the Stern report on climate change in November, we had Eddington on transport, Barker on land use and planning, and Leitch on skills. On the day, we had Gowers on copyright and intellectual property, Varney on improving public services for citizens and businesses, and Cooksey on health research funding.

Brown announced a whole series of initiatives in response: more money for medical research; a new system for assessment and funding of applied research; tightening the penalties for copying and piracy; new tax reliefs for the film industry; encouraging employers and employees to give a higher priority to skills training; three-year rather than one-year funding for the voluntary or third sector; a doubling in the number of apprenticeships by 2020; plus initiatives to meet the target that within ten years every new home will be a zero carbon home.

Brown announced that, as part of the risk-based approach to regulation, he would be setting incentives that will cut the numbers of local authority inspections.

Town halls will also be affected by his proposal in response to the Barker report that, while ministers set policy guidelines, decisions on location and planning permission for major infrastructure projects will be taken by an independent body.

The big news for local government will come next spring when the government responds to Sir Michael Lyons’ final report on council finance.

But there were no daring commitments to new green taxes, but rather an extension of some existing ones, with a doubling of air passenger duty and a rise in fuel duty in line with inflation (though no restoration of the fuel duty escalator). This was not nearly enough for the green lobby who argued that Brown had failed to match the scale of the challenge set out in the Stern report.

Brown made much of extra spending on schools, though for once there was barely a mention of health.

Planned capital investment overall will rise from £39bn last year to £60bn in 2011-12 with capital spending on education up from £8.3bn in 2007-08 to £10.2bn in 2010–11.

However, this will be within the context of a marked slowdown in the overall rate of growth of spending — from 5% a year in real terms in the first half of the decade to a maximum of 2% from 2008 onwards for current expenditure and only about 2.2% for capital investment.

Something has to give. As chancellors invariably do, Brown insisted that although ‘public spending would not grow as fast as previously, money would be prioritised’.

Some of us remember how before 1997, Brown loudly attacked ‘cuts’ when Kenneth Clarke announced a similar slowdown in spending growth.

Brown stressed the savings from the Gershon review, with departments and local authorities reporting gains from increased efficiency of more than £13bn by September. This is halfway towards the 2008 deadline for the £21.5bn savings. In addition, there is a new target of at least 3% savings a year across central and local government for the next few years.

However, even taking account of such savings, it is hard to square the slowdown in the overall growth in spending with Brown’s claims about ‘substantial’ growth. He is right that favoured areas such as health and schools will grow steadily in real terms, but there is bound to be a tight squeeze elsewhere.

The key remains the economy. Brown rightly proclaims ‘stability’, and he was able to gloat over the prospect of 40-plus quarters of sustained growth — with expansion of 2.75% this year and between 2.75% and 3.25% next year.

Consequently, he claimed that public finances would remain within his golden rule (of spending matching revenue over the economic cycle) and of overall debt levels. But the margins are tight and disputed by many outside economists.

So while Brown’s thoughts turn to 10 Downing Street, he cannot forget that all his ambitions rest on a continued stable and growing economy. What he and his successor as chancellor do will determine how long he is prime minister.

Peter Riddell is chief political commentator of The Times and author of The unfulfilled prime minister — Tony Blair’s quest for a legacy

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