Gordon Brown's Labour Budget, 2004
By Christopher Ram
Stabroek News
March 21, 2004
Introduction
As Mr Saisnarine Kowlessar, Minister of Finance, reads and reflects on the speech and the generally favourable comments on Chancellor of the Exchequer Gordon Brown's budget speech on March 17, 2004, he would no doubt secretly wish he could be in Gordon Brown's shoes. Even allowing for the great achievements of the Labour government in managing the economy since 1997, the comments were gushing but none more so than the headline in the pro-Labour tabloid, the Mirror 'The Gord Giveth.' Mr Kowlessar has very little good news to report when he finally tables the 2004 budget on March 29, 2004, and given that this is his fifth budget presentation, his speeches are becoming more predictable and less interesting.
Mr Brown is neither a modest nor an unambitious man, having just turned down overtures to take up the soon-to-be-vacant top position in the IMF, and has made no secret of his desire to replace Tony Blair as Prime Minister. He does not discourage public speculation about his increasing impatience in moving from his current official address at Number 11 Downing Street to Number 10, the official residence of the Prime Minister. By contrast, Mr Kowlessar seems to have no personal, political or professional difficulty in most public aspects of his work being done by the Office of the President generally, and specifically by President Jagdeo, who many consider as the de facto Minister of Finance.
Modesty
Gordon Brown's confidence was epitomised during his budget speech when he sardonically reported to the members of the House of Commons that he had misled them in a pre-budget report in saying that Britain was "enjoying the longest period of sustained economic growth for more than one hundred years." He apologised for that error noting that "having asked the Treasury to investigate (the matter) in greater historical detail, I can now report that Britain is enjoying its longest period of sustained economic growth for more than 200 years... the longest period of sustained growth since the beginning of the industrial revolution." During his speech he was no less immodest in pointing out that his growth prediction of 2-2.5 per cent in 2003, which had been derided by the opposition, had proved right and that growth had turned out to be 2.3 per cent, and that over the past four years, average growth has been 2.5 per cent, which is higher than in the US, the Euro Zone, France, Italy, Japan and Germany. During the same period employment has risen, (1.8M new jobs since 1997), inflation is low and stable (2.4%) and long-term interest rates have remained low.
Gordon Brown has the almost unique quality of being a good and ambitious politician as well as a strategic thinker, so that even as he pursues his own political goals, he sees no conflict in building an economy that can endure, or to use our local term, that is sustainable. He is convinced that the long-term stability of the UK economy lies in keeping inflation under control and in investing in the country's wealth-creating base. He sees manufacturing as important to the British economy, and unlike many other developed countries, he is expecting the sector to grow by 2% over the next two years, maintaining the growth pattern of the last four quarters.
Success in controlling inflation is widely attributed to the bold decision taken in 1997 shortly after Labour came in from the cold, to make the Bank of England independent with the mandate to maintain low inflation within the wider context of monetary policy. As a result of current policies, inflation for the next two years is projected to fall to 1.75% from the 2.4% recorded last year. In fact, so successful has been the professionalisation of monetary management, that there is now some talk of doing the same with fiscal policy, although there is not now much support for this concept.
Key economic indicators
Among the key announcements were:
* UK economy grew by 2.3% in 2003
* Growth forecast remains at 3-3.5% for 2004 and 2005
* Public sector borrowing for 2003/4 will be 37.5B pounds sterling, 34% GDP
* Total spending plans unchanged in over next 3 years
* Extra 20B pounds sterling to key departments from 2006/7.
...and key budget measures
* Corporation tax, capital gains tax, air passenger duties, vehicles excise duties and stamp duty all frozen;
* Beer duty up 1p;
* Duty frozen on spirits, cider and sparkling wine. The longest on duty (7 years) for half a century.
* Tax on cigarettes up 8p a packet. (Justified on public health grounds)
* Inheritance tax (a form of death duties) threshold up to 363,000 pounds sterling.
* The replacement of the eight existing tax schemes for pensions with a single lifetime allowance.
* Increase in the international development aid budget.
* A cash incentive to encourage small and medium-sized firms to set up payroll-giving schemes.
* An increase in the investment allowance for small businesses from 40% to 50 per cent.
* More money for schools some of which will be paid directly to the schools.
* Enhancing public sector productivity including chopping 40, 000 jobs.
* Closing a "tax loophole" initially intended as a concession to encourage enterprise by taxing distributed profits of small companies on the same basis as other companies.
The strategic approach
What seems to make this budget speech so different from what we are accustomed to in Guyana is its strategic focus. The theme of Gordon Brown's budget is itself interesting 'Our foundation: Economic stability; Our achievement: sustained growth; Our Choice: more investment not less.' He called for attention to sound fundamentals, monetary and fiscal discipline, making the right decisions at the right time in the economic cycle to invest in education, science and enterprise. One criticism levelled at the budget was the rhetorical question as to why borrowings are increasing if the economy is doing so well? But Brown noted in his speech "that it makes sound economic sense for low-debt countries like ours to borrow for investment." Within this guiding principle, the Labour government has sought to keep the debt to GDP ratio low and stable while balancing the current budget over the economic cycle.
In emphasizing that the UK cannot be a strong economy if it is weak in education and science, he set out the (over)ambitious purpose of making Britain the best and most attractive location for science and innovation in the world, and announced a ten-year framework for medical science. He noted that the overall capital investment budget for education has increased from 1B pounds sterling in 1997 to 7B pounds sterling.
Conclusion
Unlike Mr Brown, Mr Kowlessar does not have elections looming, and even if he did he has the ethnic composition of the electorate on his side. One of the first lessons he can learn is that a budget must be timely - the UK fiscal year starts on April 6. Mr Kowlessar must also be aware of the praise which Brown received even from the business community which is not a traditional supporter of Labour. If he presents a technically sound budget he will, for the first time since he became Minister of Finance, win friends and admirers across the nation. Let the policy issues speak for themselves - his colleagues will make all the political points during the debate.
He needs to shift the focus from debt relief and poverty reduction to employment creation and sound economic principles based on a set of values to which we all subscribe. The government can spend hundreds of millions on roads or on depressed communities but for the unemployed these are not of much use and are seldom sustainable. Let us remember what the Chinese said about fish and fishing. Clearly education, security, good governance, investment, job opportunities and sound sustainable economic policies are what we most need.
As he puts the final touches to his presentation, Mr Kowlessar will be acutely aware of the embarrassing details of the re-migrant scam involving his ministry. He would consider himself lucky that he is not held accountable for deficiencies in the reporting system which might have brought the fraud to light much earlier.
No doubt the UK has fraud taking place, but it is doubtful that the level and pervasiveness comes close to Guyana. It might be useful if he can commission a special review of all procedures within the government which may allow for the abuse of discretion as took place in this case. It may turn up much needed funds which could be available for expenditure or investment in other critical areas.