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Has Gordon Brown got his sums right?
Hugh Pym reflects on the Chancellor's pre-budget report.
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Prudence used to be Gordon Brown鈥檚 watchword. The dictionary defines that as 鈥渃areful to avoid undesired consequences鈥. But with this speech, as never before in his time at the Treasury, the possibility of unplanned outcomes is only too clear.
Put bluntly, if the Chancellor is wrong and economic growth does not recover rapidly after this year鈥檚 slowdown, his sums go hopelessly wrong. Borrowing swells and he is faced with an unpalatable choice between spending cuts or tax increases in the year before an election.
The Chancellor admitted that he would have to borrow nearly twice as much as he had first indicated - 拢20 billion this financial year and 拢24 billion next year. He then said he expected borrowing to fall back below 拢20 billion. That assumption depends on the economy moving up several gears and generating healthier tax revenues for the Treasury鈥檚 coffers. Mr Brown is hoping that the growth rate will double over the next two years. But if it doesn鈥檛, he is in trouble.
The financial markets were surprised by the borrowing figures - 鈥渆ye-popping鈥, said one dealer. They will give the Chancellor the benefit of the doubt for now but will not be happy if he has to go back and beg to borrow more in twelve months. Of course, if a Government is demanding increasing amounts of cash in the loan markets, the price of money (interest rates) may have to rise. That means the cost of borrowing goes up and with it mortgage rates - another pre-election scenario which the Government would not relish.
Mr Brown was right to argue that the British economy was fundamentally sound and better-placed than major competitor nations. Borrowing in response to a temporary slowdown is perfectly legitimate. But he does not know just how temporary this gloomy economic weather will last.
It was a speech which Mr Brown would rather not have made. No Chancellor likes to admit he got his forecasts wrong. This one, more than most of his predecessors, will have winced at the thought of going deeper into debt.
After all those triumphant Commons performances, when the Chancellor conjured up higher public spending and repayment of national debt, this one was rather different. The shine has come off the Brown currency. The good years are over for a while. Now for the hard part.
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The Chancellor in the House of Commons |
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