His key point is that the control of aggregate spending is so difficult, and so important, that the entire public spending mechanism needs to be designed primarily with this in mind. Any relaxation in intent, he implies, will lead to an unintended explosion in spending. (Mr Monck’s article appears in a valuable new collection of studies edited by Dan Corry of the IPPR, a think-tank not beloved of Michael Heseltine, but in this case a front for hard-headed analysis.)
Mr Monck’s article also contains the following prophetic passage: “If a new government arrives with a clear commitment on borrowing (the golden rule), and a belief that taxes cannot be raised significantly without jeopardising the chances of re-election, the level of expenditure will have been largely determined. Accepting this would then be quicker and simpler than a wholly new start, and would be more like deriving ceilings from previous plans.”He is right. In fact, his article might have been the inspiration for Gordon Brown’s watershed speech on tax and spend last Monday. For although Mr Brown’s speech was initially noticed mainly for its promises on tax, its most important new commitment was to keep spending at the levels set by Kenneth Clarke until the end of 1998/99.The income tax commitments may have been eye-catching, but in practice they did not involve important new constraints on Labour’s future freedom of manoeuvre.
No Chancellor would contemplate increasing the basic rate of income tax, except in the kind of extreme circumstances which would probably bring down a government anyway. Furthermore, an increase in the top rate of income tax would have raised little more than pounds 1bn. Giving that up was a small price to pay for the political statement made. Even when added to Labour’s other two commitments on tax – to reduce VAT on fuel from 8 to 5 per cent, and to avoid an extension in VAT coverage to food, fares, children’s clothes, books and newspapers – there are plenty of other places for Mr Brown to look if he ever chooses to raise the burden of taxation.This is presumably why he decided to give the electorate some extra reassurance on tax. Initially, he hit upon the formula of saying that Labour had no new spending commitments which would require extra tax to finance them That seemed fairly watertight. But it was eventually deemed not enough, since spending and tax could still rise for reasons unconnected with Labour’s programme (as a result of higher unemployment for example). So last week Mr Brown went further and fixed the absolute total of spending at Mr Clarke’s level.The key question is whether this development, which offers the electorate a belt-and-braces guarantee on tax and spend, limits an incoming government’s future freedom for manoeuvre in an unacceptable way.
On the surface, there does seem to have been a loss of manoeuvrability here – after all, until last week, it would have been open to Mr Brown after the election to have made an immediate change to the Clarke spending targets, on the grounds that they had been set unrealistically low for political reasons.Even if this was not being contemplated, the precise target for government spending in 1998/99 did not have to be finalised until November, and much can happen to change the appropriate level before then. This degree of elbow room has now been abandoned.Furthermore, Labour has now voluntarily accepted the terms of an ingenious trap that was set for the next government by Mr Clarke’s last two Budgets. In both of these packages, the Chancellor reduced the burden of taxation, justifying this on the grounds that public expenditure growth would be held down to implausibly low growth rates in the next three years (as the graph makes clear). Only if these spending plans can actually be delivered does the path for government borrowing in the Budget plans look even remotely appropriate.This is the crux.