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Last Updated: Wednesday, 22 March 2006, 14:47 GMT
Brown steers clear of economic surprises
Analysis
By Jeremy Scott-Joynt
BBC News business reporter

As far as big picture economics goes, for a finance minister no news is good news.

Gordon Brown
Gordon Brown had few economic surprises in store

Mr Brown has worked hard to lay the groundwork for ensuring that the 2006 Budget follows this rule.

He used December's pre-Budget report to get the bad news out of the way early.

Growth forecasts were slashed from 3-3.5% for 2005 to just 1.75%.

Borrowing was likely to be 37bn in 2005-6 - not the 32bn the 2005 Budget had foreseen.

And, most controversially for the economists in his audience, he moved the goalposts on his "Golden Rule" - which demands that he balances spending (with the exception of spending on investment) with borrowing over the course of the economic cycle.

No shocks

Now, just 15 weeks later, the Budget - as befits a Chancellor trying to sound more like a prime minister-in-waiting than an economist-in-chief - contains very few economic surprises.

Inflation, he said, was on target at about 2% - and would be for the next decade.

BUDGET 2006
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Growth in 2005 turned out to be 1.8% - although Mr Brown was keen to trumpet a growth rate of 2.8% a year on average over Labour's nine years in power.

He has kept to his prediction of 2.0%-2.5% for this year.

His continued bullishness for coming years, however - he predicts 2.75%-3.25% in each of 2007 and 2008 - is viewed with some scepticism by economists, many of whom think there is a great deal less spare capacity in the economy than Mr Brown likes to believe.

In the red

That could prove bad news for the other economic statistics of which Mr Brown was most proud.

Amid a welter of figures, the Chancellor said he was meeting the Golden Rule with 16bn to spare, adding that by 2010-11 the government would be running a surplus of 12bn a year.

MR BROWN'S ECONOMIC FORECASTS
Growth: 2-2.5% in 2006, and 2.75-3.25% the next two years
Inflation: Set to stay on target for the next decade
Government budget: set to be 12bn in surplus on current spending by 2010-11
Borrowing: set to fall from 37bn this year to 23bn by 2010-11
Golden Rule: Government spending set to be in surplus by 16bn over the economic cycle (the 12 years from 1997-8 to 2008-9)

Borrowing, he said, would fall to 23bn by 2010-11 - mostly to fund the extensive spending on health and particularly education which Mr Brown used as his Budget's big finish.

But all these glowing predictions are dependent on the continued growth - and on tax revenues continuing their remorseless rise, so as to keep public investment on track.

Rising revenues

This bullishness is partly justified by soaring receipts in several of the final months of the current financial year.

The boost has come from a combination of greater taxation of profits from North Sea oil - a popular move, given the rise in energy costs - growing corporation tax receipts, and the crackdown on corporate tax avoidance introduced last year.

But can it last?

That largely depends on whether the Treasury's growth predictions are on target. And that is exactly what many economists remain sceptical about.

Shifting dates

There is also the thorny question of whether Mr Brown's glowing self-administered report card is justified.

After all, even if his proud announcement of a 16bn surplus over the economic cycle is accurate, that does depend on the length of the cycle itself.

Originally, it was reckoned to be seven years from 1999-2000; at the pre-Budget report that became the 12 years from 1997-8, a much less challenging target.

This tactic dealt some damage to Mr Brown's credibility and means his borrowing figures are seen in a rather less rosy light than they might otherwise have been.

Belt-tightening

In any case, revenues and borrowing are only half the picture.

There remains the issue of how the money is spent, and it is here where Mr Brown could really run into trouble.

One reason why this Budget was widely seen as something of a yawn was that the three-year Comprehensive Spending Review to cover 2008-11 has been pushed back to next year.

Still, the figure currently suggested is a 1.9% expansion in public spending - making it, after adjustment for inflation, a real-world cut.

In order to fund his expansive promises on education, security and law and order, Mr Brown has shown his intentions by pencilling in painful cutbacks - some 5% a year in real terms - for the HM Customs and Revenue, the Treasury and the Cabinet Office.

More controversially, the Department of Work and Pensions is in for the same bitter medicine - a move which could be seen as trying to cut off some of the more expensive forms of pension reform before the discussions about them really begin.

But, by the time the cuts come into force there may be someone else at the Treasury - and therefore someone else to take the blame.




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