BROWN'S BLACK HOLE
Of the many personal mishaps to have afflicted ministers in the last Conservative government, few, ultimately, can have proved as damaging as the revelation that Norman Lamont had exceeded the credit limit on his Access card. No matter that most credit-card holders commit this oversight at some point, nor that the cheap cigarettes and fizz he was alleged to have bought in a seedy street in Paddington turned out to be a fantasy on the part of an off-licence manager. The point was that at the time the government was running a £51 billion overdraft. The link between the personal and the official was irresistible: how could a chancellor who was unable to look after the pennies in his own pocket be trusted with looking after the pounds in the Treasury? Mr Lamont, who had sur vived Black Wednesday, resigned soon afterwards, and the Tories' reputation for being good with money never recovered.
If Gordon Brown has a credit card, he should be very wary of where he keeps his statements, If he carelessly discards one, he could find himself in Norman Lamont's shoes. As we go to press, the Chancellor is preparing to make his pre-Budget report. Given New Labour's track record in news management, we can be confident that his announcement will be in line with the leaks of the past few days, which have suggested that he will raise this year's projected public borrowing requirement from £10 billion to £17 billion. While this does not yet represent a debt problem of the proportions which faced the Conservatives in 1993. £7 billion is an alarming black hole to have appeared in the public finances in half a financial year.
The impressive obstinacy with which the Chancellor has rebuffed the firefighters' pay claim masks the fact that government spending is spinning out of control even without excessive pay rises for public servants. To take the NHS budget alone, Mr Brown has committed the government to spending £105 billion a year by 2007-8 — more than two and a half times what was spent on the NHS in 1999-2000. The commitment is based on an assumption of economic growth which has already, after just six months, proved to be over-ambitious.
Mr Brown excuses his borrowing spree in terms of a Keynesian duty to stimulate a dormant economy. 'Some have suggested,' he says in a draft of his speech leaked to a friendly newspaper, 'that the right approach in the face of slower growth is that, instead of holding firm to our long-term course, we should cut spending and borrowing irrespective of the stage of the economic cycle and the need for public investment in transport and our infrastructure; in my view the consequences of such a short-termism and deflationary approach would be higher unemployment, depressed demand and lower growth.'
There are several objections to this. There is little to suggest that the United Kingdom is at the bottom of the economic cycle. It may be true that the City and man ufacturing industry are not doing well at present, yet we are in a consumer boom fuelled by household debt, in particular by the practice of 'equity withdrawal': borrowing against the value of one's home. If the Chancellor thinks these are tough times, he should wait for the moment when consumers appreciate the scale of their debts and draw in their horns. At that point, tax revenues face collapse as they did in the early 1990s, and Mr Brown could find his borrowing requirement surging on the scale of Mr Lamont's.
Ever since he was in opposition, Gordon Brown has been in the practice of denouncing as 'short-termisf any economic strategy other than his own. It is a wonderful conceit: Gordon, with his telescope, planning for decades hence while other chancellors can't see beyond their breakfast. Yet, five and a half years into the job, it is far from clear what Gordon's great long-term strategy is. As far as can be remembered, this was the government that was going to 'think the unthinkable' on welfare, create stakeholders of us all, and revolutionise public services. Instead, we have more people claiming more complicated 'tax credits' than ever before, a pensions crisis, and creaking public services, which seem to be performing in inverse proportion to the billions which the Chancellor is pouring into them.
Taxing and borrowing to feed a voracious state monolith like the NI-IS is not longterm thinking. We know from 50 years' experience that a hefty slice of any extra money put into a state bureaucracy will be swallowed up in creating non-jobs and in pointless pen-pushing exercises like 'ethnic monitoring'. Outrageous though the firefighters' pay claim may be. we have some sympathy for them in that it must be hard for them to reconcile the pay they receive for doing a real job with the inflated salaries for public-sector non-jobs advertised weekly in the Guardian's Society pages.
Like the archetypal British consumer borrowing against his house to fund a Caribbean holiday and a new conservatory, Gordon Brown has withdrawn the equity from 11 Downing Street and blown it on what amounts in many cases to frivolities. The inevitable result will be negative equity followed by his eviction.
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