Brown can honour commitments

Article Abstract:

The United Kingdom government has announced increased spending on health and education, and this is in line with the government's own rules on fiscal prudence. The Chancellor, Gordon Brown, forecasts a budget surplus by 2002 to 2002, and public debt is forecast to drop as a proportion of gross domestic product. This forecast may be optimistic, because economic growth may not be as high as expected. The government would still be borrowing to invest, rather than to fund spending, over the economic cycle as a whole. A very deep recession could, however, create problems for fiscal policy.

Government spending policy

Mr Brown's box of Budget tricks

Article Abstract:

Fiscal tightening would help United Kingdom manufacturing industry since interest rates would not have to be raised, and pound sterling could fall in value. The government is unlikely to tighten fiscal policy, however, since public finances do not require it. Taxes are already planned to rise, and there is no certainty that the government could lower the value of pound sterling in a controlled way. A drop in the value of the pound could also push up inflation, which in turn would mean that interest rates would have to rise.

The hole in the Treasury's books

Article Abstract:

The UK economy may not perform as well as the Treasury forecasts and this would mean that public sector debt could increase more rapidly than forecast. Pressure from public sector pay could push up borrowing, and pressure could arise because private sector pay is increasing more rapidly. An increase in output could help boost tax revenues, but could also lead to inflation. A rise in interest rates would slow economic growth and cut tax revenue, while tax rises would both slow growth and help public finances.

Budget deficits