Budget 2008: No room for manoeuvre?

Published in The Spectator online (London), 9 March 2008

Thinking about Parliament, it is easy to miss the wood for the trees. While it is often associated with party political exchanges and topical debates on issues of the day, its core function could be reduced to just one thing: the determination of how government is funded and how the money it raises should be spent. All other policies, whether on policing, education or health, follow from the decisions made in the Budget. Without a budget there could be no army, no hospitals and no schools. In fact, there would not even be a Parliament, let alone a Prime Minister.

It is thus really hard to overestimate the role that the Budget plays in the nation’s political life. It is the single most important subject that Parliament regularly has to consider.

Given the far-reaching consequences of the Budget, one would expect the House of Commons’ contemplation of it to be a great moment. On the Continent, one often hears that the power to determine tax and spend policies is the “royal right” of a country’s Parliament. Although this may sound a bit lofty, it is hardly off the mark.

But things in Britain are different. As Westminster is preparing for Budget day 2008 – on Wednesday, 12 March – one could be forgiven a certain degree of cynicism. Not only will it again fail to be a Parliamentary moment to remember, it will probably be a day one will wish to forget immediately.

There are a number of reasons for this bleak outlook. First, the way the UK handles its budget is unique. Parliaments in other countries play a very active role in preparing, debating and controlling their budgets. The UK’s public finance decisions, on the other hand, are shrouded in secrecy.

When the Chancellor leaves Downing Street with his famous red briefcase, most MPs can only resort to intelligent guessing as to what is likely to be in it. They share the guessing game with analysts, journalists and economists. Little wonder, then, that transparency, predictability and reliability are difficult to achieve under such circumstances.

Successive Chancellors have made it a habit always to include a surprise in the budget speech, if only to catch the opposition on the wrong foot. But such surprises have more than once later turned out to be mere tricks designed to score political points. It will thus be surprising only if Alistair Darling resists the temptation to pull a fiscal rabbit out of his hat.

Apart from the political gimmickry that often surrounds Budget day, there is a second reason why this year’s Budget may not be a memorable one: there is widespread agreement that current fiscal conditions do not leave much room for manoeuvre.

The Budget comes at a time when there are dark clouds on the economic horizon – a contrast to the sunny days when Gordon Brown, as Chancellor, would eulogise over his part in unprecedented periods of continuous economic growth. This makes it almost impossible for Mr Darling to pledge a few extra billion pounds for education, health or the environment. In any case, even when Mr Brown used to do this, he often recycled promises.

The public finances are in an extraordinary condition. After 15 years of economic growth, the budget should be showing a healthy surplus. After all, prudent managers regularly set aside a stash of money to deal with unexpected changes of circumstances. The government would have been well advised to do likewise. What it has actually done, however, is the very opposite.

The budget deficit is currently around three per cent of GDP, and this at a time when the economy is still growing moderately. This alone would be unpleasant, if not yet catastrophic. But there are reasons to fear that things might get worse in the next couple of years. Much of the UK’s previous growth record depended on a buoyant housing market and the availability of cheap credit. The fallout from the US subprime crisis has brought an abrupt end to both these conditions. Add to that the risks posed by a recession across the Atlantic as well as rising energy, food and commodity prices and you have a potentially poisonous cocktail for the economy. The hard to quantify dangers around Northern Rock add to the troubles faced by the Treasury.

Given all these circumstances, the chances of a downturn in the UK’s economic performance are quite high. So far, few analysts are predicting a recession. But it would take less than a full blown contraction in the economy to leave the state’s finances in disarray.

For all of this, there is no leeway for any kind of fiscal stimulus that would help the economy avoid harsh times. It is not even clear whether the scheduled real spending increases of two per cent per annum until 2010 are realistically achievable without tax increases. So in this sense, one cannot and should not expect too much from the Budget. It will most likely be a tight, boring budget for difficult times.

In all honesty, opposition politicians would find it hard to present a realistic short-term alternative to this. They, too, realise that there simply is not enough room to offer something radical. For fear that spending cuts may alienate some voters, they have even subscribed to the Government’s mid-term tax and spending totals until 2010-11. So we are now facing the extraordinary prospect of Labour, the Conservatives and the Liberal Democrats all accepting the same overall figures for the medium term, while restricting the debate to the details. Politically, this is understandable, but it forecloses debate on the size of the state and the amount of taxes we should pay.

Yet such a debate is desperately needed if we want to put the state’s finances onto a more sustainable footing. If there is one proposition that has been tested to destruction over the past decade or so, it is the one that says only public spending can solve problems. To name just the most striking example, only a few days ago it emerged that average NHS waiting times had actually gone up despite a £90bn investment in the NHS. Given this, it can no longer be argued that better public services can only be delivered by an ever-growing state.

Budget day would be a great opportunity to discuss such issues. Parliament is the place in which different visions for the economic future of this country should be discussed. It is sad, then, that all we can expect from the budget debate are squabbles over fiscal minutiae and announcements such as ‘1p on this’ or ‘£1 from that’.

Constrained public finances should not be an excuse to surrender to the seemingly unavoidable. It is times like these that ask for the boldest, most courageous solutions. And it is times like these that Parliament should play a greater role in developing ideas for a better economic future. After all, that is what Parliament is all about.

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