Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 6:45 pm on 14th April 2003.

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Photo of Matthew Taylor Matthew Taylor Liberal Democrat Spokesperson (Treasury) 6:45 pm, 14th April 2003

Thank you. The Budget contained one unpredictable element that I was really surprised by: the Chancellor's decision, having thrown out prudence and dallied with lady bountiful, to hit the casinos—the gambler Chancellor. Underlying all of these policies are two assumptions that simply cannot be justified, but which underpin his spending programme for future years. He had a choice. His Budget need not have frozen some of the allowances, and he could have brought in a little extra in the way of finances. Most of all, he could have been honest and said not only that borrowing will be higher than he predicted for next year, but that it is likely to continue to rise for some time. We could then have argued about that.

Had the Chancellor taken that approach, his growth forecasts could have matched those of independent forecasters; instead, he chose to take a flyer. He chose to base his entire economic plan for the next few years on the assumption that growth in 2004 will bounce back way beyond the consensus of independent forecasters. He forecasts not the average 2.4 per cent. growth for 2004 predicted by independent forecasters; nor is he just a little on the high side of that figure at 2.5 to 3 per cent. He forecasts growth of a full 3 to 3.5 per cent. in just a year's time, despite the fact that forecasters predict that business investment will drop again next year.

We are talking about a bounce back coming from nowhere, funded by nothing, with no investment to pay for it. The Chancellor believes in that, and he may be right: perhaps the response to the war in Iraq will be a huge runaway success in the American economy, driving worldwide success and driving up the British economy, despite the fall in business investment in the United Kingdom. To describe that as prudent, however—well, not even the Chancellor could bring himself to do it.

The fact is that the Chancellor has taken a flyer. He has taken a gamble, and I do not think it was predictable. I think it was extraordinary. The chances are that he will have to come back in the autumn, or at the time of next year's Budget, and admit that he has got it wrong again and must downgrade his figures yet another time. Why did he do this? It is almost impossible to understand.

I am not talking only about the growth figures. In a couple of years, corporation tax receipts will be at record levels. They will not be at their present 2.3 per cent. level, or at the 2.9 per cent. historic average. A rate of 3.3 per cent. from the economy as a whole will be paid in corporation tax. How often has that been achieved? It happened in only one year, in the late 1990s, at the top of the stock market boom. For some reason, however, the Chancellor believes in low business investment along with record corporation tax levels.

If the Chancellor does not achieve his aim, he will have to cut spending or else—more likely—come back in a year or two and ask for more tax. This time it will not be to fund investment in education and health, but to fund a gap caused by his mistakes, which have led to low investment in business. That has meant an economy that has not earned the money to pay for the Chancellor's plans for health and education.

We welcomed those plans. We stood by them, and argued for the necessary increases. Next time, however, it will be not a tax for health and education, but a tax for Brown's error. Why did he do that unpredictable thing? Why did he take a gamble? I do not know. Perhaps we shall never find out; or perhaps the Chancellor has no intention of being in office when the time comes to pay his bills.