Gordon Brown Scottish Prime Minister-in-Waiting
Yesterday saw what may be the final Budget from Gordon Brown, although there is a precedent for the roles of Prime Minister and Chancellor to be combined. Much depends on when Blair decides to resign and he shows a reluctance to do so. Some suggest that he is hanging on to give colleagues time to find a challenger to Brown to succeed Blair. Others point out that the police investigations appear to be structured to present files to the Prosecution Service after Blair steps down. As he may be charged with offences this is an encouragement to delay resignation, as happened in Italy when Prime Minister Berlusconi was under threat of prosecution.
This British budget set a real challenge.
In the first years of the Blair regime, Brown kept to spending plans set by the previous Conservative administration which had, under Chancellor Clarke, established consecutive quarters of growth and achieved the strongest economic performance by Britain since before the 1914-18 War. Brown also introduced the first of a series of stealth taxes, the most damaging being an annual GB£5 billion raid on pension funds, destroying the long established excellence of pensions schemes in the UK.
In the second five years, Brown has continued to raise new stealth taxes but has presided over a massive spending programme that is bigger than it looks because Private Finance Initiative schemes have been used to fund a huge NHS building programme and other public works, mortgaging the UK Government for the next 30 years. Some estimate that PFI schemes add another GB£10 billion to the current fiscal deficit.
When the Bank of England took responsibility for setting interest rates, they still had to work to political instruction. As a recession began to open, the interest rates were used to encourage a huge level of unsecured personal debt and fueled a dramatic rise in house values. Eventually that has to be paid for and 2007 looks like the year of payback.
None of this is well timed for Brown’s aspiration to follow Blair as Prime Minister. There was simply no money to give away. As a result Brown relied on misdirection. He tried to create the false impression of massive tax cuts when in reality he was delivering a Budget that was overall neutral, headline cuts being matched by covert increases.
As a result most citizens will not see any overall change in their tax liabilities. A few will see some very modest gains and more will see tax increases overall. Unfortunately the main losers appear to be in the poorest section of society. Business is similarly affected because the apparent gains on reduced taxation will be balanced for most companies by increases elsewhere and some will be worse off, mainly in the vital Small/Medium Enterprise, SME, segment.
Brown has created a track record of devious Budgets where in the months following his Commons presentation, the reality of the Budget slowly emerges and ‘winners’ find that they have won nothing.
This Budget began to be exposed as it was delivered, commentators having now learned to look for the hidden taxes and increases.
Three intriguing questions are raised:
will Blair announce his resignation in May?
will Brown win the contest that will follow for a successor?
has Brown already decided to go for a snap General Election if Blair goes and he succeeds?
The answers may depend on the results of the forthcoming Local Government elections, particularly on the Scottish votes. Current forecasts show the Scottish Nationalists heading for a majority in the Scottish Parliament and they have already stated that their first task would be to run a referendum for a break up of the United Kingdom. If that happens, Gordon Brown, as a Scottish MP, would be left hunting for an English Constituency if he wanted to be Prime Minister in London. Ironically, the Scottish Prime Minister-in-Waiting would be unwelcome in Scotland.
The more concerning question is:
has a new recession already started?
Some commentators point to the rapidly rising number of personal bankruptcies and house repossessions. With further increases in Bank Rate forecast, the number of people defaulting on house mortgages could increase very rapidly, triggering a total collapse of the housing market. This Budget shows how tight Government funding has already become behind the propaganda. It also indicates the scale of spending cutbacks due for public services, and the impact that will have on jobs.