Money: Budget "Ends spending spree"

UK Chancellor of the Exchequer, Gordon Brown has been forced to end a three-year spending spree on public services in his annual budget but held out the promise of strong economic growth in the run-up to the next election. With tax revenues stagnant, Brown halved the rate of public spending growth in the next few years from the near five percent annual surge of recent years. He was bullish about the economic outlook, forecasting growth of a punchy 3.0 to 3.5 percent this year and next, which few economists would disagree with, for this year at least. 'The purpose of this budget is to lock in... an economic stability that can and will endure,' Brown told the English/UK Parliament, effectively opening the tax-and-spend fight that will help decide the next general election. As a key plank of the policy that swept Labour to power in 1997, Brown had been pouring money into Britain's neglected schools and hospitals. But now money is tight -- public finances are deep in the red -- voters remain dissatisfied with public services and the government's popularity has waned. The budget contained few big initiatives on either the tax or spend side, promising a war on government waste to save money and a cash boost for pensioners rebelling against local taxes. Marc Ostwald, strategist at Monument Securities, said:
'It's a tinker-man budget. It's what people were expecting.'
TAX SHY With a general election likely in just over a year, Brown steered clear of tax hikes to cover the shortfall but economists say rises are a near certainty if New Labour wins a third term.
The opposition Conservative & Unionists, trying to frighten voters out of electing New Labour again, say Prime Minister Tony Blair will have to tax his way out of the problem. 'This budget has made it clear that if New Labour get a third term, tax rises are inevitable,' said Conservative & Unionist leader Michael Howard.
Brown also effectively buried any chance of ditching the pound for the European single currency this parliament by saying Britain was still not ready to join the Euro, and that he would review its readiness again next year. BULLISH ON GROWTH In his pre-budget report in December, Brown suffered the embarrassment of having to revise up his estimate of this fiscal year's deficit to 37_000_million from the 27_000_million_GBP he had forecast in last year's budget. For the new fiscal year 2004-2005, starting in April, Brown predicted a shortfall of 31_000_million_GBP, a figure that analysts think is just as over-optimistic. On Wednesday, he raised borrowing by another 3_000_million_GBP over the next two years, saying the current fiscal year would end with a deficit of 37_500_million_GBP, followed by 33_000_million of borrowing in 2004-2005. Brown strived to boast instead of the economy's strong performance during the recent world downturn.
'In the past, Britain has been first in, worst hit and last out of world recessions,' he said, contrasting weak performers overseas with an economy in Britain characterised by healthy growth, slow inflation and low interest rates. The current run of uninterrupted growth, he said, was the longest for over 200 years.
Many forecasters, including the International Monetary Fund, think tax rises of up to 10_000_million_GBP will be needed in the next few years to ensure Brown meets his rule of balancing the current budget, minus investment, over the economic cycle. Ashley Seager, Reuters via Yahoo! News 2004-03-17 We (St.Patrick's Day)


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