Comment – Backtracking on Budgets

Whatever the ups and downs of his relationship with the Prime Minister, there is no doubt that Gordon Brown has taken some important steps in his first nine months as chancellor.

For instance there’s the contracting-out to the Bank of England of control of interest rates and the banging together of heads in the City regulation industry in the FSA.

Some important tax changes have been announced and others foreshadowed.

And on the public expenditure side the comprehensive reviews that are put in hand can only be good. Overall, the public finances are likely to be in pretty good order, even if this is more down to Kenneth Clarke than to Gordon Brown.

So it’s a pity against this background of progress that Gordon Brown has recently announced what is in effect a very substantial backward step.

This is his abandonment of the single November Budget, introduced by Norman Lamont after many years debate, in favour of the old two-track system of spending decisions for the upcoming fiscal year being announced in the autumn (‘The Autumn Statement’, now apparently to be renamed the ‘Pre-Budget Report’), to be followed by the Budget proper in the spring.

There are arguments in favour of this. Spending departments and agencies need to be given as much notice as possible of the money they’re going to have, so they can make the best use of it – hence the autumn announcement – while tax decisions can sensibly be left to the last moment and be properly attuned to the circumstances at that time.

But a timetable that separates tax from expenditure, with expenditure coming first in time, has one fatal flaw. It means that expenditure drives tax, something which is generally agreed as being a major part of our economic troubles for very many years.

Spending ministers in the autumn, desperate to increase or at least protect their programmes, are presented with menus without prices which the unfortunate chancellor – or rather you and I – has to pay for in the spring.

No well-run commercial concern would introduce a six-month gap between deciding what is going to be spent and then raising the necessary money to meet it. This has to be a recipe for trouble, and in the public finances in the past it certainly has been. Sir Peter Kemp is chief executive of the Foundation for Accountancy and Financial Management

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