You won’t want to hear more about a Budget that is now more than a week old and is consequently, in stock market as well as political terms, well past its sell-by date. But now that the dust has settled and the nation’s three-year-olds can sleep happily in the knowledge that the Chancellor won’t be gatecrashing their birthday parties for close on another 12 months, I do think it is worth asking one question that is widely overlooked: was it a Budget that was good for Europe?
By this, I don’t mean that we are prone to spend too much time considering whether a Budget is good for Britain at the exclusion of the wider picture (though that is certainly true), nor that we should necessarily be considering the effect of the Budget on the economic confidence of our European Union partners (though we should). What I do mean is that we should be considering the Budget in terms of Britain’s position in Europe, as well as within our own micro-economy.
Welfare issues aside, it was widely agreed the Budget was a triumph for Gordon Brown’s own brand of level-headed radicalism. In the arena of possibly the greatest concern to marketing folk, retailers expressed relief that he did nothing with the domestic taxation regime that would unduly depress consumer spending. For the financial services industries, there was an elegant climbdown over the potentially punitive tax treatment of savings schemes.
These and other deft fiscal touches – such as the corporation and capital gains tax revisions – inspired sufficient investor confidence to see shares in London pushing at the envelope of record highs. Further economic news in the wake of the Budget – a lower average-earnings rise, for example, and larger than expected falls in retail sales – temporarily removed the threat of interest rate rises and the FTSE 100 index of leading shares tested the 6,000 mark for the first time last Friday.
Meanwhile, with the strength of sterling similarly inflated, we should spare a thought for our exporters. With little to suggest a dampening of the dizzying levels of the pound, our British foreign currency earners can expect more of the same hammering that they have suffered over the past 12 months or so. Worse than that, the pound is now effectively beyond political control – there is now no point in the CBI, or whoever, calling on the Chancellor for exchange rate assistance, since for all practical purposes there is nothing he can do about it.
This situation is partly of his own making – the almost unseemly haste with which Brown divested interest-rate control to the Bank of England’s monetary policy committee (MPC) put the old currency interventions of previous governments beyond his reach. But it is also a factor of a broader economic trend – sterling’s strength is not only beyond the control of the Chancellor, but also beyond that of interest-rate policy. There are those who claim that a tough Budget could even have boosted the pound, because the attractions of British assets for foreign investors may have been enhanced.
This is thoroughly depressing news for exporters and, for those who suggest that I am being too much of a Jeremiah, I invite you to await comments this year from the likes of Allied Domecq or Diageo in the drinks industries, or GEC and Racal in electronics or Glaxo Wellcome and SmithKline Beecham in pharmaceuticals, now that they face a future without the excitements of consolidation.
I have a theory, with regards to the Chancellor’s interest rate policy, that few willingly share with me as it requires the application of an enormous dollop of cynicism to Brown’s first actions on becoming Chancellor. It goes like this: he arrives in office knowing that the issue of a single European currency has done for at least one previous Chancellor and contributed significantly to the demise of the entire previous Government. Brown is determined not to be similarly exposed to the political liability of a single currency, but can see that it will be a ticking timebomb under his administration (the ticking became noticeably audible last year when his chief spin doctor ballsed up the communication of his position on the subject).
So, some protection was required. A solution that came readily to hand was to cede interest-rate control substantially to the Bank of England. That way, when interest-rate policy had to be manipulated to control levels of sterling (or, possibly, vice versa), the Chancellor would be perfectly entitled to say that this was not a matter for him but for the Governor. A very happy expedient in the event of trying to take Britain into a single European currency, whenever that may be.
This may be a good policy for Brown, but it’s rather less good for British export industries. With the pound out of control, they are likely to suffer in the short term from savaged earnings and consequent lack of investment. Moreover, any likelihood of joining a single currency – which could bring more level trading conditions – remains remote as long as sterling appears to be a bubble waiting to pop.
This prospect may be encouraging for an opposition party on the make – a band of Tory Europragmatists led by Ken Clarke comes to mind. But for British industries marketing goods and services from Britain across Europe and beyond, it’s really very frightening, as well as frustrating.