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Brown May Boost Debt for Health and EducationUK March 21, 2007 - Chancellor of the Exchequer Gordon Brown, in what probably will be his final budget, may borrow 6 billion pounds more than he forecast four months ago to fund health and education spending, an economist survey shows. The government's deficit may total 101 billion pounds in the three fiscal years through April 2009, according to the median forecast of six economists. In December, when Brown announced an extra 7 billion pounds in borrowing, he said there would be a 95 billion-pound shortfall. Brown, preparing to take over when Prime Minister Tony Blair retires later this year, is straddling calls for improved schools and hospitals with deficit reduction as Conservative leader David Cameron attacks the government's handling of the economy. Brown trails Cameron in polls despite having presided over the longest period of economic expansion in two centuries. ``You would expect his last budget before a leadership election to have some measures that grab the attention but that aren't too expensive,'' said George Buckley, chief U.K. economist at Deutsche Bank AG in London. ``It will be difficult for him to do too much.'' Brown, who has served as Blair's finance minister since Labour took office in 1997, delivers his annual budget to Parliament from 12:30 p.m. today. His term at the Treasury, making him the longest-serving chancellor since Nicholas Vansittart in the 1820s, has included 39 of the past 58 quarters of uninterrupted economic growth. Slipping Support An opinion poll by ICM Ltd. showed 41 percent of voters support the Conservatives, up a point from last month, while Labour was unchanged at 31 percent. Backing for Brown was at 28 percent while Cameron had 43 percent. ICM interviewed 1,011 adults between March 16 and March 18. ``The government is looking tired and stale, and Brown has been tarnished by that,'' said Peter Kellner, chairman of YouGov Plc, a polling company. ``On its own, the budget won't be enough to turn around Brown's fortunes. It will be part of a bigger process to win back support.'' Britain has moved more slowly than other European countries toward reducing its budget deficit since 2003, when its gap soared above the EU's limit to 3.3 percent of gross domestic product. Brown expects a deficit of 2.8 percent next year. That compares with 2.6 percent in France, 1.6 percent in Germany and 2.4 percent in the U.S., according to the European Commission. Spending Slowdown To bring the shortfall into line, Brown in December forecast spending growth would slow to 1.9 percent a year during the next three years from 4.2 percent in the period since 2004. The deficit also leaves little scope for tax cuts to boost Brown's popularity ahead of the next election, due by mid-2010. ``He doesn't have much room to maneuver,'' George Bull, head of tax at Baker Tilly Financial Services in London, said in an interview. ``He should take measures to boost competitiveness, but he doesn't have the money to finance a cut in tax.'' Spending on health grew by 7.1 percent from 2001 to 2005 and on education by 6.7 percent during the same period, more than double the pace between 1979 and 1997 under Conservative Prime Ministers Margaret Thatcher and John Major. ``The rise in public spending as a share of GDP in the last five years has been striking,'' Brian Coulton, an analyst at Fitch Ratings Inc., said in a note to clients. ``It has been sharper than the previous episodes of rapid growth over 1980-83 and 1989-1993, both of which encompassed two major recessions.'' Narrowing Gap Figures published yesterday showed a 1.04-billion-pound deficit in the month of February, half the amount analysts expected, as economic growth spurred tax receipts and government departments cut spending. With one month left in the financial year, Brown has run up a deficit of 26.9 billion pounds, less than the 36.8 billion pound gap he expects for the full year. ``He might not overshoot his borrowing figures for this year after all, which might allow for a give-away,'' said Geoffrey Dicks, chief U.K. economist at Royal Bank of Scotland Plc in London. Economists expect growth to be slower than forecast by Brown in December and by the Bank of England in February. The economy may expand 2.8 percent this year, according to the median forecast of 10 economists. That compares with Brown's forecast for the economy to grow as much as 3.25 percent and the Bank of England's projection for 3.1 percent. For next year, economists expect 2.3 percent expansion, less than the range of 2.5 percent to 3 percent that Brown predicts. Some economists predict that rising taxes may exacerbate a slowdown in the U.K. economy. The tax burden has risen to 40.3 percent of GDP in the current fiscal year from 37 percent the year Brown took office. Brown expects it to reach 41 percent in fiscal 2009, the highest since 1988. ``The chancellor's endless tinkering with the tax system has lifted the tax burden to its highest in over 20 years,'' Peter Spencer, a former Treasury economist now advising Ernst & Young, wrote in a note to clients. ``His legacy as chancellor could be slower economic growth.'' |
