It must have been music to the City's ears when the Chancellor said fiscal discipline was not just for tonight, it was forever. Well, the economic equivalent of forever - admittedly a much shorter time. But it is Mr Gordon Brown's ambition, to be achieved by reining in on public borrowing and spending way beyond the initial two-year embrace of Tory expenditure limits, to guarantee long-term financial stability and an end to boom-and-bust cycles. The Chancellor's commitment to fiscal prudence is welcome. Current spending is to be funded only by current revenues and any borrowing is to be ploughed into investment. The investment message is particularly welcome because chronic under-investment has held up sustainable economic growth, essential for long-term employment and welfare to work's success.
Mr Brown's first public declaration that there will be no relaxation of the tough rules on public spending for the rest of this Parliament has more resonance for political and labour relations reasons than economic ones, at least in the short term. The buoyant economy has boosted income tax, VAT, and corporation tax revenues. Such is the rude state of economic health that there will be a surplus in the nation's finances at the end of the financial year. The Tories are right to detect rich hypocrisy. They get all of the blame for their legacy of prudence when tough decisions have to be made, but none of the credit for its undoubted contribution to the buoyant economy. The real political repercussions will be felt within New Labour, however, as Ministers are asked to deliver cut after departmental cut and find new, better, and cheaper ways of spending the taxpayer's pound.
The comprehensive spending review is not due to be published until next month, but Ministers know that the bulk of any savings they make, for instance by selling off unwanted assets, will be ploughed into education, health, and inner-city regeneration. It is highly doubtful if the sums raised will be enough to meet manifesto commitments but if the Chancellor is to deliver Mr Blair another General Election victory then an income tax rise is out of the question. And each incantation of the fiscal rectitude and discipline mantra makes it all the more difficult for the Chancellor to raid a war chest to buy General or Scottish Parliament Election votes. He has set himself the toughest of challenges, one which the unions are already rising to with their demands for more public spending and higher pay rises for nurses and teachers.
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