From Business World of 28 March 2005.
Brown’s last
budget
Gordon Brown,
Britain’s Chancellor of the Exchequer, presented his ninth budget on 16 March.
His first budget in 1997 – the year of Chidambaram’s first budget – broke a new
path. His budget speech was a model of brevity; it took just over an hour. Its
entire thrust was on what Brown intended to do with the budgetary process, what
he meant to achieve in Labour Party’s five years.
On the revenue
side, Brown introduced an idea in 1997 which could be called orthodox in theory
but was revolutionary in practice. Keynes has proposed in the 1930s that the
budget balance should be varied anti-cyclically: deficits in slack years should
be balanced by surpluses in boom years. Brown turned this prescription into his
Golden Rule: that over a trade cycle, the government should balance its budget.
And that is what Brown did. His first five years till 2001 were years of high
growth; he used them to run a budget surplus. There was much discontent in
Britain about the continuing poor state of the health service. But he stuck to
his guns and restrained expenditure to run up a surplus. He also handed over
the management of inflation to the Bank of England. It was made independent of
the Treasury. It appointed a panel of economists to advise itself; on its
advice the Bank raised or lowered interest rates to keep inflation down.
Despite his
miserliness – or because of his steadfastness – Brown’s stock rose. Labour
Party trounced the Conservatives in the 2001 elections. At that point, Brown
should have become Prime Minister. He and Tony Blair are close in age. When
Labour came to power in 1996, there were rumours about a compact between them –
that Blair would step down after the next election and hand over the baton to
Brown. But Blair did not step down, and Brown soldiered on in the Treasury.
In his next
term, Brown changed course. Divested of concern about inflation, Brown began in
his next term to raise expenditure on the health service. In the three years to
2005/06, government expenditure on public services will have increased by 13
per cent – a big increase in an economy whose real growth rate is 3 per cent a
year.
As he began to
increase government expenditure on social services, Brown also began to
refashion the instruments of control. Earlier, the government just spent; when
the spending did not result in any improvement in government services, everyone
gnashed teeth till the next year, when the process was repeated. Brown
introduced increasingly sophisticated measures of performance of social
services, including surveys of consumer satisfaction. Thus he knows that the
output of health services increased by 4.1 per cent in 2003 – but that 9 per
cent of extra expenditure was being lost in lower productivity. Thus he could
judge the Treasury’s performance – and the public could judge his - with the
figures the Treasury published. The Treasury has become Britain’s Planning
Commission – but a more sophisticated, professional one.
Brown’s next
assault is on red tape. He has promised to reduce public sector inspectorates
from 11 to four, other inspectorates from 35 to nine, and 63 regulators to
seven. And while we are struggling to introduce a single VAT, he has promised
to introduce a single tax account with which businesses can settle their corporation
tax and VAT liabilities together.
Despite this
consistently virtuoso performance, Brown’s future is clouded. For Blair will
lead the Labour Party into his third general election in May, and this time
there is no speculation that he will hand over to Brown. His stock has gone
down after he joined Bush in the war on Iraq; and the lower it goes, the more
he is determined to stick to the Prime Ministership. If he returns as PM, will
Brown soldier on as Chancellor? Or will he seek greener pastures? Unlike our
Sinhas and Jaswant Singhs, he will have other options. He could become head of
an Oxbridge college, or chairman of the board of a big company. But maybe we
should bring him over as vice chairman of the Planning Commission.
