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Budget2000 Tuesday, 21 March, 2000, 18:46 GMT
Strong growth and more spending
Chancellor Gordon Brown says the UK economy is set to grow by around 3% this year, and has allocated an extra 4bn in public spending next year, with half of it to be spent on the health service.

Mr Brown forecast a growth rate of 2.75% to 3.25% in 2000, and return to the long-term average of around 2.5% in the next two years.

Labour's spending plans
2000-01: +4bn
2001-02: +11bn
2002-03: +13bn
2003-04: +16bn
source: Budget 2000, table 2.4
The strong economic growth had led to a huge budget surplus of some 12bn, against a predicted deficit of 3bn.

But Mr Brown maintained that his prudent management of the economy has meant that despite the strong growth, inflation is under control.

"Inflation in Britain has been lower for any time since the 1960s," Mr Brown said.

"We are determined to maintain our disciplined stance .. Britain does not want a return to boom and bust," he added.

"Unemployment is at its lowest in 20 years .. while there is a real rise in living standards of 10% since 1997," he added.

Room for public spending

The chancellor said that the government finances were strong and it would have no difficulty meeting its financial targets.

But he said, that despite the budget surplus he would continue to be prudent with the public finances, repaying much of the government's debt.

The Tax Burden
1998-99: 37.1%
1999-2000: 37.0%
2000-01: 36.9%
2001-02: 37.3%
2002-03: 37.1%
source: Budget 2000, table C10 (net of Working Families Tax Credit)
He said that he would run a surplus of 14bn next year and 16bn the year after that - continuing his policy of fiscal tightening.

And he said he would continue to repay debt. The total national debt would fall from 44% of GDP in 1997 to 35% next year.

Professor Meghad Desai of the London School of Economics, a former Treasury junior minister, criticised the government for spending so much of its surplus on debt reduction.

He told BBC News Online that he would have preferred to see more of the surplus go on public spending immediately, rather than waiting until after the next General Election.

But Roger Bootle, economic advisor to the accountants Deloitte & Touche, said that the budget forecasts could worry the City with its combination of "prudence now, spending later".

Boost for spending

Mr Brown said that he would still be able to increase public spending in real terms by 2.5% in the three years from 2001, while increasing public investment as a share of national income from 0.9% of gross domestic product next year to 1.8% of GDP in 2004.

Independent economists said that Mr Brown was, if anything, being too cautious in his forecasts.

Roger Bootle told BBC News Online that while the economic forecast was "bang on line" with the consensus, based on past experience, the Chancellor was being "super-cautious" in his forecast of his budget surplus.

"Despite admitting that this year and next the public sector will be much more heavily in surplus than he thought a year ago, the chancellor has raised the forecast for borrowing from 2003-2004 onwards," he said.

Mr Brown made it clear that he would allocate most of the extra cash available to increase funding to the NHS.

Spending on health will grow by 6.1% in real terms over the next four years, with an extra 2bn available next year.

He also allocated another 1bn for education.

Andrew Dilnot of the Institute for Fiscal Studies said that the good figures were a result of the unprecedented growth of the economy over a decade.

He said that most of the extra money was going on spending on health and education, squeezing other services like transport.

In the next financial year, spending would grow by only 4bn, while 12bn of the surplus would be used for debt. But in the following years, the figures would be reversed, with spending rising by 11bn in 2001-2002, while debt repayment would fall to 5bn.

In this budget, then, Mr Brown has laid down the outlines of his General Election strategy.

More spending on public services, rather than tax cuts, will be the theme.

And even if Mr Brown is being prudent in the short-term, his pledge on NHS spending is sure to create clear blue water between Labour and the Conservatives.

Chancellor Gordon Brown
"We want to avoid a return to boom and bust."
See also:

20 Mar 00 | Business
10 Mar 00 | Budget2000
10 Mar 00 | Budget2000
21 Mar 00 | Business
10 Feb 00 | Business
28 Jan 00 | Business
26 Jan 00 | Business
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