The Pre-Budget Report: Mind the Gap

In what will probably be Gordon Brown's final budget, he had slightly more latitude than last time round. But what legacy is he leaving his successor?

This Pre-Budget Report, Gordon Brown's tenth and probably last before, he hopes, moving next door to No 10 had considerably more room for latitude than the previous offering benefiting as it had from £2bn extra from North Sea taxes and a lengthening of the economic cycle, both forward and back, to ensure that precious fiscal rules remained intact. By so doing the Chancellor could use this set piece, not just to help prepare for his own elevation but also to pave the way towards next summer's Comprehensive Spending Review (CSR).

That said, the public finances are not so robust as to provide Mr Brown with a huge amount of wiggle room and what we got, in the end, was an estimated net £2bn tightening in fiscal policy each year from 2007-08. This should be sufficient to ensure that the public finances continue their very gradual improvement in the near-term, but the period following 2007/08 will be dominated by the conclusions of the CSR. Given the aggressive nature of current assumptions for that period (a 5% drop in spending growth! Can you see it happening?) Mr Brown's successor is going to have to be forged from something stronger than iron.

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