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Budget2000 Wednesday, 22 March, 2000, 09:12 GMT
Budget worries the City
Gordon Brown's "prudence for a purpose" Budget has received a mixed reaction from business and the City.

That is despite the fact that the Budget represents a further tightening, with people overall paying more tax than they did last year.

Mr Brown believes that his sound economic management is proof that Labour can be trusted with the economy.

The economy is growing strongly, Mr Brown says that the public sector budget surplus will continue to grow, and argues that his steady management has eliminated the boom-and-bust cycle that has bedevilled the British economy.

Nevertheless, the highly political decision to pour money into the NHS - with a 4bn increase announced for next year, to be followed by 6bn more each year for the next three years - did cause concern.

The Confederation of British Industry, while welcoming the increased spending on transport, said that it was worried by the "electioneering slant of his spending proposals."

"We are also worried by the levels of committed public expenditure at a time when the strength of sterling is a real issue and so many jobs in the UK are at risk. This is not the Budget for business that we were hoping for," said CBI director general Digby Jones.

The financial markets took the Budget calmly. The pound actually strengthened on foreign exchange markets, while the FTSE-100 index of leading shares ended up slightly.

Radical changes

Concern in the City is not so much to do with Mr Brown's specific figures, as with the readiness with which he has changed them to suit his purposes.

This smacks too much of electoral opportunism, rather than long-term stability, according to some critics.

Roger Bootle, economic advisor to accountants Deloitte & Touche, points out that the government's estimate about the budget surplus has swung by 15bn in this year alone - from a deficit of 3bn to a surplus of 12bn.

While this is good news for now, it also suggests that there is a great deal of uncertainty in the future about the glowing projections for further budget surpluses.

Added to that, Mr Bootle points out, is the sudden increase in spending on the NHS, which he believes was a political decision arrived with after discussion with the Prime Minister and added at the last minute to the Budget.

He says an additional 5.9bn in spending in 2000-01 came as "a bolt from the blue".

Mr Brown's dilemma

Speaking on BBC Radio 4's Today programme, Mr Brown accepted that he was distributing money to the poor to make a fairer society - but he said that no one was suffering because the money was the fruit of economic growth.

"We are able to do more for the poorer for society because we are cutting unemployment and the national debt ... that is something everyone in society supports," he said.

Although he refused to accept that any groups were worse off, the Budget document reveals that overall, taxes have tightened further this year, as a result of previously announced tax increases.

But many economists argued that, if anything, the Budget should have increased taxes further to pay for the future spending increases.

Rosemary Radcliffe, chief economist at PriceWaterhouseCoopers, says that the 1p cut in income tax "seems hard to justify" now given the danger of overheating in the economy.

And David Walton of Goldman Sachs pointed out that the government was now projecting a budget deficit of 13bn by 2004-05.

"The loosening is bigger than we expected ... this could complicate the Bank of England's task."

The Bank of England has raised interest rates four times so far to try and cool the economy. Interest rates now stand at 6%.

The problem of the pound

Mr Brown tried to deflect criticism from industry that he had done nothing for their plight, and in particular the concern about the high pound, which has hurt exporters.

"We are trying to do more for industry ... we want to see modern manufacturing strength and our tax system is geared for investment and e-commerce," he told the BBC.

Mr Brown said that his measures were designed to make British industry more competitive, and he denied that the high pound was the basic problem that caused the collapse of Rover.

Many City analysts, however, and the International Monetary Fund, have argued that the government will have to raise taxes further to prevent the pound and UK interest rates from rising further.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Peter Morgan reports
"Tax experts have accused the government of a serious blunder"
See also:

22 Mar 00 | UK Politics
21 Mar 00 | Budget2000
22 Mar 00 | Budget2000
21 Mar 00 | Budget2000
21 Mar 00 | Budget2000
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