FRFI 190 April / May 2006

Chancellor Brown’s tenth budget is designed to be his last one. ‘The British economy is strong and strengthening’, he declares at the beginning of the budget speech, rattling off reams of statistics to drive his point home. This ‘new economic stability’, the result of his stewardship, makes Britain ‘better placed than ever to be one of the global economy’s success stories’. Surely he now must move on to replace an increasingly discredited prime minister Tony Blair before any further damage can be done. That is what he wanted us to believe as he delivered what the Financial Times called ‘not so much a budget, more a lengthy application for the job of prime minister.’

As with all Brown’s budgets the form and presentation are everything. The substance is often very different. What the budget speech leaves out is invariably more revealing than what it contains. There was no mention of health because the NHS faces a severe crisis despite the massive rise in spending. His predictions are always far too optimistic. The projected level of public borrowing over the next five years – £152.1bn from 2005-06 to 2009-10 – is already some £19bn above that predicted in his 2005 budget, and it will almost certainly rise further in future budgets, threatening to break his self-imposed ‘prudent’ limit of a 40% public debt to GDP ratio. Even the claim that ‘the UK economy is experiencing its longest unbroken expansion since quarterly records began’ (Red Book) of 54 consecutive quarters (over 13 years) is formulated to disguise the fact that on an annual basis the post-war boom from 1949 saw 25 years of successive growth.

Education, Education, Education…
Education was the stick Brown used not only to beat the leader of the opposition David Cameron but also to lay down his own ‘progressive’ credentials to disillusioned Labour MPs. It took the form of an intention to eradicate the pupil funding gap between state and privileged private schools. This was not just a populist dig at Cameron who was educated at Eton but also designed to give heart to those Labour MPs who want to see Blair, another private school boy, replaced by Brown as prime minister. In reality it is all wishful thinking. Annual spending per pupil in state schools is at present around £5,000. In private schools it is £8,000. The Treasury is already backtracking on Brown’s announcement, saying that he had not said in his speech that he wanted to eliminate the differential between state and private funding but had an ambition to raise spending to £8,000 per pupil in state schools.

Brown’s speech was in fact typically ambiguous. He wanted in the long term to ensure all children had ‘the educational support now available to just 10 per cent private pupils’. He also said that he had an objective ‘stage by stage, adjusting for inflation, [to] raise average investment per pupil to today’s private school level.’ The long term will be very long indeed because to carry out this policy, according to the Institute for Fiscal Studies, would require an additional £17bn a year – equivalent to 5p on the standard rate of income tax. Prudent Brown has no intention of raising income tax to pay for his policy. He will, however, increase schools’ capital investment on equipment and buildings from £5.6bn to £8bn a year over a five year period to match private sector levels of capital investment.

The increases in schools current budget are minimal, £270m in 2006-07 and £440m in 2007-08, just 0.08 per cent of government expenditure. This small expenditure in a priority area reflects the harsh reality of public finances under Brown’s neo-liberal spending restraints.

Rises in education and health spending are crucial if the middle and upper working classes are to continue supporting Labour. Education spending on present estimates will haven risen by 65% in real terms between 1996-97 and 2007-08. But that is no guarantee that there will be any significant improvements in education for the vast majority of children if the experience in the health sector is anything to go by. Health spending will have risen by a massive 90% in real terms over the same period. Brown didn’t mention it in the budget because NHS trusts have an overall deficit of some £750m and have been forced through government policies to close beds and have already cut, in the last month alone, over 4,000 jobs. Millions have been wasted through the creeping privatisation process, on management consultants, high paid executives and the wasteful administrative costs of setting up internal markets. Labour’s reforms are costly and wasteful. Brown replacing Blair will not change any of this.

A reactionary opportunist
Brown is an opportunist. In his 2005 budget (see FRFI 184 April/May 2005) he needed to win voters for the coming election. Typically he offered pensioners over 65 a £200 council tax rebate. In this budget, with the election won, he has taken it away. He has also frozen the winter fuel allowance, despite energy prices rising by 57% for gas and 42% for electricity since the last increase. As a smokescreen he has offered to extend free bus travel available locally to over 60s to any part of the country after April 2008, hoping no doubt for an improvement in public finances by that time.

Brown tried to show his ‘green’ credentials by raising vehicle excise duty on high polluting cars. The amount is derisory, around £45 on cars such as SUVs costing up to £45,000. Fuel duty is to be frozen yet again despite a fall in motoring cost of 8.6%. Brown knows Labour’s core supporters and he is not about to upset them.

Brown has solidly defended British imperialist interests with hard cash since he has been in office. An additional £800m is to go towards military operations in Iraq and Afghanistan next year with the total cost for those operations now approaching £6bn. He has also allocated a further £200m ‘to promote peacekeeping in the most troubled parts of the world’, that is, to have troops and equipment available to defend British interests in the poorest parts of the world. No doubt this will prove useful for the new City of London taskforce he has set up to promote British financial interests globally.

Brown made the usual overtures to Labour’s rich supporters this time by new rules for real estate investment trusts (Reits). They are investment trusts for holding property which pay hardly any tax. In return for not paying corporation tax, Reits must distribute 90% of their net profits to shareholders. Brown has made them less restrictive. Property shares rose 10% after the budget. In addition the threshold for inheritance tax has been increased well above the rate of inflation. Brown never lets down Labour’s rich friends and middle class supporters.

The Private Finance Initiative has some 200 projects (worth around £26bn) due to be signed over the next few years – one of the largest private finance programmes in the world. The privatisation of public assets will continue unabated as Brown tries to increase funds for his key expenditure programmes. £30bn of state assets will be sold by 2010, and, in addition, there are plans for a further £20bn to be raised by selling off assets such as the state-owned nuclear industry. With the creeping privatisation of the health and education service offering easy money to a broad spectrum of businesses, it is not surprising that Labour had little difficulty finding rich business men to secretly lend Labour the £14m to fight last year’s election. They are on to a good thing.

David Yaffe