THE 1992 BUDGET FOUR LEGS GOOD; TWO LEGS BETTER

Abstract

In framing his Budget, the Chancellor, Mr. Lamont, sought to balance two mutually exclusive goals: the political imperative of establishing the Conservatives as the party of low taxation on the one hand; the deterioration in the financial position of the public sector on the other. Inevitably the Budget fell between these two stools. The net cut in taxes, though cleverly angled towards the low paid, was a modest £2.2bn, 0.4 per cent of GDP, which is unlikely to ‘buy’ many votes on 9 April. This may largely free the Government of the charge of trying to bribe the electorate, yet it still leaves the PSBR at £28bn in the coming financial year, £36bn excluding privatisation receipts, which is equivalent to 6 per cent of nominal GDP. Over the medium term Mr. Lamont reaffirmed the Government's commitment to a balanced budget, though on the Treasury projections this is not achieved by 19967, despite the assumption that growth averages 3.5 per cent a year from 1993 onwards. On our calculations, a return to budget balance is unobtainable even on the Treasury's optimistic growth projections without a move to tighter fiscal policy. The Conservatives' maxim that ‘budget balance is good; budget deficits are bad’ may not have been formally jettisoned, but it is in the process of being re-written as ‘budget balance is good; budget deficits are better, as long as they are prudent’.