BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
    You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
 Wednesday, 17 April, 2002, 17:21 GMT 18:21 UK
Brown upbeat on UK economy
Chancellor Gordon Brown has told Parliament that his polices have allowed the economy "to steer a steady course of stability" in a world facing uncertainty and recession.

I will not only maintain our cautious rules... but go further and implement a small tightening of the fiscal stance over the next two years

Gordon Brown
In his Budget forecast, the chancellor said the economy was expected to grow by between 2% and 2.5% this year - in line with earlier forecasts - and a robust 3% to 3.5% next year, higher than previously predicted.

And in a highly significant move, he said that the long-term rate of economic growth in the economy was now 2.5% - higher than the previous assumption of 2.25%.

That will allow spending to grow faster without breaching fiscal rules, adding an extra 5bn to government coffers by 2005-6.

"That (change) has given him a lot of leeway to have higher spending, so it has enabled him to give very generous spending and not have to raise taxes as much as he otherwise would have done," said economist Ciaran Barr of Deutsche Bank.

Raising taxes

And he said that he would tighten the fiscal purse-strings, with public borrowing cut by 1bn more than planned next year and 2bn in 2003-4.

Tax rises
2003-4: 6.1bn
2004-5:7.6bn
2005-6:8.3bn
"I will not only maintain our cautious rules... but go further and implement a small tightening of the fiscal stance over the next two years," he said.

That implies a tax rise in coming years to fund his ambitious plans for a 40bn boost to the NHS, and it will also help dampen consumer spending.

The tax increases -mainly an extra 1% on National Insurance for both employers and employees -amounts to 6.1bn next year, rising to 8.3bn in 2005-6.

The extra tax increases are also needed to fund an extra 2.5bn to aid families with children.

Economists said that the boost to taxes would help delay any interest rate increases by the Bank of England until later in the year.

"There is that much less pressure on the Bank of England to come out and tighten next month," said Jeremy Hawkins of Bank of America.

Disappearing war chest

As Mr Brown revealed his optimism that the economy would rebound from its slowdown, new figures released on Budget day showed his Budget surplus had already disappeared.

The public sector was in the red by 1.3bn in the current financial year that ended this month, compared with a surplus of 15.9bn in the previous year.

Mr Brown said the overall Budget deficit would rise to 11bn this year, and 13bn the following year - slightly less than previously forecast.

The main reason for the growing deficits is falling tax receipts, caused by the economic slowdown.

But government departments are also spending more after years of underspending,and Mr Brown said that investment would rise even further.

Economy steady

The government has been fortunate so far in that the worldwide economic slowdown has hit the UK economy less severely than most other rich countries.

Figures released on Wednesday showed unemployment levels reached a 25-year low, while inflation is still under the government's 2.5% target.

However, the economic slowdown meant there was very little growth during the last three months of 2001.

And with economic weakness continuing in Europe, the UK main's trading partner, economic challenges remain.

Budget 2002 Live
Budget - as it happens


Key stories

Analysis

QUIZ

BUDGET DIARIES

AUDIO VIDEO

TALKING POINT
See also:

17 Apr 02 | Business
16 Apr 02 | Business
15 Apr 02 | Politics
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes