George Pitcher: Britain’s blinkered Budget ignores the bigger picture

The Budget is a domestic affair that ignores the international context. At the time it was announced, Europe was breaking into a trade war with the US. By George Pitcher

It is the nature of the Budget to be inward looking. It’s a domestic affair, with the Chancellor balancing the domestic housekeeping and telling us how much the UK needs to earn to afford what she needs to spend, to keep us in the manner to which we are accustomed.

Little or no attention is paid to the UK’s position on the world stage. There may be some references to British competitiveness, but the whole exercise is couched in the language of prudent husbandry of the economy, emphasised by what it will mean for the home economics of sample families that you never meet in real life.

So last week’s effort from Chancellor Gordon Brown inevitably concentrated on the return of tax-and-spend and the political gamble of trying to rescue the health service at the expense of the New Labour manifesto.

Relatively little was heard of the effect on competitiveness abroad of the estimated &£4.5bn cost to British business of taxes levied last week. The price of an improved health service – of which there is no guarantee of delivery – will be counted in employment, inward investment and corporate profitability.

But, even when it comes to these issues, attention is more readily paid to the internal effects of such economic factors, rather than on the effects of our competitiveness abroad.

The whole domestic navel-gazing experience is rather depressing and confirms Britain’s insularity. We cling to an idea that if the UK simply considers its own economy as distinct from Europe, let alone a broader global economy, then somehow we will continue to manage our place in the world and that other major economies will pay something other than bemused lip-service to our contribution to that global economy.

The danger of this domestic economic obsession is that we miss bigger events occurring in the global economy that threaten to make anything we achieve, in relation to levels of national insurance contributions and the health service, fairly meaningless.

One of these bigger events was developing in Europe last week, even as the wiseacres of the British economy were dissecting the implications of Brown’s Budget.

The European Commission has proposed a set of trade sanctions on products imported from the US, in retaliation to the US move last month to impose tariffs of up to 30 per cent on its steel imports – a potentially ruinous blow to European steel exporters, such as our very own Corus.

The EC’s proposed sanctions are to be levied on US products as diverse as citrus fruits from Florida, apples and pears from Washington and Oregon and, of course, steel from Pennsylvania, Ohio and West Virginia. Levies of more than &£230m a year could be imposed on the US.

An official voice from Brussels was heard to declare that these sanctions are designed to “hit the US where it hurts”. Meanwhile, a US trade official rejoined that such a move would “strike at the heart of the multilateral trade system.”

I expect the American who said that managed to do so with a straight face, because the US doesn’t have much of a sense of irony when it comes to protecting its own trade at the expense of Europe’s. But this growing trade war has implications well beyond the world-famous American lack of self-awareness.

For one thing, the major western economic forums – G7, the International Monetary Fund (IMF) and the World Bank – conduct their business as if their members are a harmonious alliance. They ignore the 30-stone gorilla sitting in the corner. That gorilla is called a trade war – and he’s run out of mangos and is looking restive.

Ministers from the G7 and IMF met last weekend to address the undoubtedly serious issues of terrorist finance, bankrolling broke countries, such as Argentina, and World Bank lending. But nowhere on the agenda was there any discussion about how to avoid trade wars in free markets.

The developed economies are in denial. They present a consolidated front to issues arising outside their own prosperous milieu, yet fight increasingly acrimonious battles internally over tariffs. They will lecture the Third World on probity and prudence, while beating up on each other in their own markets.

This is dangerous. How certain quarters of the Arab world must be amused and heartened at the secular West’s decadent inability to keep its capitalist act together, while claiming to present a united front against fundamentalist terrorism and the territorial battles of the Middle-East.

And where do European Union sanctions on the US leave the UK’s commitment to stand “shoulder to shoulder” with the Americans in the foolishly ill-defined war on terrorism? It must be difficult to have a war ally with whom one is conducting a trade war.

To a significant extent, this is a mess of the Prime Minister’s own making. Tony Blair’s desire to take a presidential stand on the world stage has led him to commitments that look untenable in practice.

Perhaps the Chancellor has played a canny game. While Blair has been away saving the world and exposing himself to the inherent contradiction of fighting a war alongside an ally with whom he is having a trade war, Brown has contented himself with domestic economic issues.

And it is not just Budgets that are inward looking and unconcerned with world affairs. So are general elections.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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