Brown heading for budget squeeze?

If there was any doubt that the government climate in UK is changing, Gordon Brown confirmed it in his Pre budget statement yesterday. Although he has confounded his critics yet again, his growth forcasts have not kept pace with the massive government spending on public infrastructure. Simply, he has been spending outside his famously prudent budgetary rules.It may mark the end of a decade of what the Governor of the Bank of England called, the NICE decade. That is: non inflationary consistent expansion. Danny Gabay of Fathom Financial Consulting, offers an alternative: HELP: high expenditure, low productivity. Did I hear a gulp at the back?

The Chancellor played up his ability to raise taxes to manage public finances, and his opponent’s, somewhat understated, belief in tax cuts. But, according to Chris Giles in today’s FT, the challenge to any future Chancellor will be two fold:

First he will have to keep public expenditure growth under much tighter control. It will not be easy. This year he has found it impossible to keep to his spending plans for 2007-08 and beyond and when the planned increases drop after April 2008, the challenge will become even tougher. Second, the Treasury will have to brush up its forecasting skills.

There is a public vulnerability here that the Chancellor (and ‘PM Designate’) will not relish. He wants to fight his next election on a strong public investment programme (that the Tories will struggle to rival), founded on strong economic fundamentals.

To prevent this apparently short term problem into the kind of long term nuralgia that has bedevilled many of his predecessors, he will need to start looking for some value for money, and start sitting on public sector waste in way we’ve not seen since the last Tory administration.

The question our political parties will be asking themselves is, who wants to be Minister of Finance if the Chancellor/PM is getting increasingly bear-ish with a sore head.

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