Rules are made to be broken. Unless, that is, they are golden ones.
Gordon Brown has, apparently, been on course to break his golden rule, of a balanced budget over the course of an economic cycle, ever since he became Chancellor of the Exchequer nearly eight years ago.
Seven years ago, it was the National Institute, in a report warning of a “one-in-three chance of outright recession”, which said that huge tax increases were needed to spare the Chancellor being forced into making an apology. There weren’t. He didn’t.
Last November, cynicism reached one its periodic peaks when the Organisation for Economic Co-operation and Development issued a similar warning. When, later that week, his pre-Budget report heralded no significant tax rises, analysts queued up to condemn Mr Brown’s cavalier economics. Robert Barrie, at CSFB, said: “We can’t take this fiscal policy thing seriously any more.” Stephen Lewis, the Monument Securities economist, said: “His response to the alarming numbers is to ignore them.”
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Yet today, official data questioned the City’s eagerness to cry foul at every unsettling figure.
Britain’s public finances posted their biggest cash surplus in five years in January, helped by a surge in tax revenues. Receipts from income and capital gains taxes were, at £18.0 billion, 19 per cent higher than a year before, despite the efforts of the crash-happy Inland Revenue website to foil taxpayers. Takings in corporation tax and petrol duty rose by nearly 26 per cent to £7.38 billion.
Such a performance in the most important month for tax receipts, prompted many analysts, grudgingly, to admit that Mr Brown was on track to meet his golden rule after all.
“On balance, the Chancellor looks about set to make his forecast for public sector net borrowing,” Mark Miller, the HBOS economist, said.
Ross Walker, the UK economist at RBS Financial Markets, said: “Trends are going Brown’s way.”
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Jonathan Loynes, the chief UK economist at Capital Economics, was less accommodating, believing that “it is very touch and go whether the rule will be met in this cycle”, before, naturally, going on to make a prediction of “sizeable” tax rises after the general election pencilled in for May.
How churlish after Mr Brown again has claimed the title of forecast master.
Yet Mr Loynes may have a point. If today’s most pleasing news was the rise in corporation taxes, whose low levels have long puzzled the City and Treasury alike, its most dispiriting was a separate report revealing the extent of public sector pension liabilities. The Government would have to borrow £690 billion to create a fund capable of meeting pension rights already accumulated by three million public sector workers, actuarial consultants Watson Wyatt said.
That sum is equivalent to nearly two years’ total tax receipts, or the value of Britain’s 13 largest listed companies.
While the Government has made some progress towards making the contractual changes to limit future liabilities, it has made little towards finding the cash to meet pension claims set to accelerate until 2020.
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Still, that will be a problem for future Chancellors, of course. Credit it to luck, or guile, but if he is about to move to the Foreign Office after the election, then Mr Brown is on track to leave the Treasury with a record of competent economic management intact.