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INSIDE THE CHANCELLOR'S HEAD |
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This year's Budget was keenly watched. Did the chancellor make the right decisions? Use FT.com's interactive feature to follow the chancellor's reasoning as he prepared the 2002 Budget:
The chancellor's Budget dilemma
Senior Labour figures feel they have established the party's credibility in the centre of the political spectrum, relegating Labour's reputation as the party of tax-and-spend to a distant and unpleasant memory. Parsimony in the public spending in the first years of the Labour government has given it the political and financial freedom to announce ambitious increases in spending in later years. Spending is set to rise sharply in real terms until 2003-04 - the last year of the period covered by the Treasury's last Comprehensive Spending Review.
This new-found credibility gives Labour a choice. It can keep taxes unchanged, allowing spending to rise more or less in line with national income in the long term and thereby calling an end to the high spending increases in the present and immediate future. Or it can raise taxes, increasing further, after 2003-04, the share of the national cake eaten up by public services.
It is a tempting prospect, given public clamour to improve the quality of healthcare, education and transport in particular. Ministers who head the big spending departments have been campaigning aggressively for generous helpings of cash. There are also advantages in moving sooner rather than later, so voters have time to assimilate any tax increases before the next general election, due by mid-2006 at the latest.
The chancellor can be fairly confident that the public finances will be in good condition up until 2003-04. During this period he should easily be able to meet his two self-imposed fiscal rules: that total public investment should be kept at a prudent and sustainable level, and that current spending (excluding capital investment) should not exceed revenue over the economic cycle as a whole.
The real debate is over what will happen in the next couple of years. These are the issues which have probably been going around the chancellor's brain in recent weeks, starting with how much to spend on health...
Should the chancellor go for a high-spending or low-spending option for the NHS?
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