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Last Updated: Thursday, 2 December, 2004, 18:00 GMT
Brown has no room for giveaways

By Evan Davis
BBC economics editor

The Chancellor has faced bad news on government tax revenues and borrowing so far this year - too little tax revenue, too much borrowing.

So the only really important economic question in the pre-Budget report was how bad he thought the recent news really was, and for how long he thought it would last.

And in answer to these questions, the Chancellor told us the news is not too bad, and it won't last long.

Oil boost

Oil rig in the North Sea
Soaring oil profits result in higher tax revenue
By taking an upbeat view of the economy, and of the prospect that tax revenues will - one day - pick up, he meets his rules and targets, and has no need to raise taxes.

He's helped by the 2bn per annum extra tax harvest he reaps from higher oil prices - the oil companies pay it on their North Sea operations - and by assuming banks will soon be paying more tax as well.

In all this, one might view the Chancellor as daring to take on the economics profession, which tends to be less optimistic.

The ifs

Gordon Brown may be vindicated - he has made better growth forecasts than the economists up to now - but a lot has to go right for him.

  • The economy has to reaccelerate out of its current slow patch, back to the growth rate of earlier this year
  • tax revenues have to pick up in spectacular fashion over the next two years,
  • oil prices have to stay high, and
  • government departments have to spend within their budgets (even though they're spending slightly ahead of them at the moment).
As I say, this may all happen, but certainly the Chancellor's forecasts do not appear to be very cautious.

No room for giveaways

In his pre-Budget statement, Gordon Brown effectively told us he's going to be hoping for the best - at least this side of an election.

But while he'll be accused of being overly-optimistic, he won't be accused of electioneering.

Indeed, his fiscal rules are working to plan - they leave him too little room to make big pre-election giveaways of the kind that are due about now.

To afford a giveaway, well, you'd have to be quite a bit more optimistic than even Gordon Brown dares to be.

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