POLITICS

Mr Brown has damaged the economy by keeping his election pledges

BRUCE ANDERSON

By the time Gordon Brown rises to deliver his first budget, The Spectator will have gone to press. This is inconvenient, but not hopelessly so, for the main ele- ments of the Chancellor's budget judgment are now clear. But this does not mean that the budget is intellectually coherent. On the contrary: a political failure has prevent- ed Mr Brown from implementing measures which both he and the Treasury believe to be necessary, while political obstinacy has led him to adhere to one policy which can- not be justified.

The Treasury is a remarkable institution. Governments and chancellors come and go; its corporate ethos barely changes. This is in spite of much disparagement; when did anyone last write favourably about the Treasury and its officials? 'The dead hand of the Treasury'; 'Treasury obscurantism': these are the phrases which recur. Yet the rest of us should be grateful for that dead- handed obscurantism. Without it, our national finances would be in much worse shape.

The Treasury ethos is based on a very low assessment of human nature — and above all of political human nature. The Treasury does not believe that politicians can be trusted to spend the public's money; it does not even believe that the public can be trusted to spend its own money. If the Treasury had its way, there would be no tax cuts, and no spending increases. Driven to exasperation by all this curmudgeonli- ness, many a politician — of both parties has exclaimed: 'If you lot had your way, the real economy would languish while your coffers would be overflowing with money.' But the Treasury's response is always the same. With impeccable courtesy and the thinnest, wintriest of smiles, it will reply: `Our coffers overflowing with money? We will deal with that problem, Minister, when it arises.' Somehow it never does.

But far from complaining about the Treasury ethos, the new Chancellor has tended to embrace it. A son of the manse, he seems to have a Presbyterian approach to fiscal rectitude. This has delighted his civil servants, who were hoping that Mr Brown would be ready to tackle an intellec- tual weakness in the Thatcherite approach to economic management.

Throughout the 1980s, most monetarist Thatcherites believed that it would always be wrong to use fiscal policy to achieve monetary objectives. Fiscal problems should be dealt with by tax increases, mon- etary problems by measures to check the growth of the money supply, principally higher interest rates.

It is now clear that this was an artificial separation; it is impossible to pretend that monetary and fiscal policy can be kept in separate compartments. If the aim is to depress consumer demand by mood-alter- ing economic measures, why rely on inter- est rates alone? If income tax and VAT could also be used as a regulator, the econ- omy would be easier to stabilise. But the Thatcherites had two problems with all this. They — especially she — hated putting up taxes. They also hated taking advice from certain quarters. It was Ted Heath who had said that steering the economy by monetary means alone was like trying to play golf with only one club. He was right, but he was the wrong person to be right.

The Treasury had hoped that a new chancellor would give it a bigger golf-bag. Its officials are worried about consumer demand, and there is anecdotal evidence to justify their anxieties. Especially in London, new galleries and restaurants seem to open every day, plus shops which sell teddy-bears and nothing else. As Nigel Lawson put it in his final budget, we may be having too much of a good thing. But, unlike 1989, there is still time to take corrective action. The Treasury also believes that borrowing is too high for the current level of econom- ic growth. If the aim is — as it should be to have nil net borrowing over the business cycle, the government should now be repaying debt, not adding to it.

So the Treasury would like the Chancel- lor to raise taxes. Mr Brown would also like the Chancellor to raise taxes, but that is where politics becomes an obstacle. All the factors which would justify a tax increase should have been apparent to Mr Brown three months ago, when he was still in opposition, still trying to win over the mid- dle classes by reassuring them about Labour's tax plans. Even a government with such a large majority and a full Parlia- ment in front of it would be taking a terri- ble risk if it dishonoured its promises.

There was one possible way out, but Mr Brown failed to take it. He could have fought, and won, the battle of the books. Within hours of becoming Chancellor, he could have declared in those tones of sepul- chral solemnity which come so easily to him that the Tories had left everything in a ter- rible mess, giving Labour no choice but to repudiate its tax pledges: the national inter- est demanded nothing less.

It would not have been true, but he might have got away with it. At that stage, the Tories were too demoralised to make an effective response, while the public were ready to believe every ill of the outgoing government. A Harold Wilson or a Denis Healey would have pounced; it is to Mr Brown's moral credit that he failed to do so, but it will make his political task harder.

It also means that the budget measures which he did announce will not help the economy. Such fiscal tightening as does occur will not dampen consumer demand, nor is it likely to achieve a net reduction of government borrowing. It will merely direct funds away from productive, job-creating activities towards unproductive, job- destroying ones.

This is particularly true of the wretched windfall tax. It had little enough justifica- tion when Labour first invented it; since then, even that has disintegrated. It was originally supposed to provide jobs for 250,000 18- to 24-year-olds who had been unemployed for more than six months, but during the intervening years nearly 400,000 of such 18- to 24-year-olds have found work; there are only 170,000 left, a signifi- cant number of whom are either in the black economy or work-averse.

The windfall tax is also inequitable; it would probably be illegal under the Basic Law which we have left behind in Hong Kong, and it is almost certainly in violation of EU law. The Government thinks it can get away with it by bullying: telling big busi- nessmen, in effect, that they ought to be grateful that it was not worse, and that if they kick up too much of a fuss, it will be next time. But company directors have a fiduciary duty to protect their shareholders' interests. If their lawyers advise that there is a reasonable chance of the courts finding against Mr Brown, it is hard to see how they can avoid taking action.

If ever a foolish idea which had flour- ished in the naivety of opposition deserved to be stifled the minute the party in ques- tion came into government, it was the windfall tax. But Mr Brown has chosen to honour all his election pledges, at the expense of the British economy.