UK Budget 2003 : Where was the Vision ?

I did not expect anything 'visionary' to be announced last Wednesday lunchtime by the government. When the UK chancellor Gordon Brown stood up to deliver the annual budget speech, I was not holding my breath for something spectacular. Yet a part of me remained ever hopeful, despite all that has happened over the last few years, I retained a small degree of hope that something useful might be proposed.
 

A Visionless Chancellor ?


Gordon Brown, UK Chancellor 1997- present
Photo : Labour.

 

Some 59 minutes later, Brown sat down... having bored the hell out of almost all who listened to him. I could handle the monotone of his voice, I could deal with the dowdy attitude of his being, but what I could not accept was the total lack of vision in anything he proposed. I just sat there post speech, thinking 'huh ?  what the hell, he did it again ?, absolutely nothing !'. I was not surprised at the lack of passion in the man, who could be after all these years ? But still, the UK economy is something to be passionate about and Brown certainly failed the UK people.
 

The Developing UK Economy

Over the last few years the UK economy has shown amazing resilience in the face of a massive global downturn. Despite what many think, the UK has arguably been one of the best places to reside during the last 5-7 years. The economy has grown - if somewhat hesitantly at a few percent each year. Government investment has been steady, and tax revenues have increased gradually each year. Inflation, interest rates are at historical lows of around 2-3 and 4-5 % respectively. More people are employed than EVER before - around 28-29 million.
UK GDP 2002 stood at £894 billion (CIA data), and production has been rising at around 1.5-2.5% annually. Overall things in the UK look quite (dare I say) reasonable.

Things have indeed been looking nice and stable - as 'Steady Eddy' - the Bank of England's ex. governor would be proud to agree with. But is this economic situation the best we can expect, or do we deserve better ? After all, it is now 2003 and  we are now proceeding along in the early years of the 21'st century. Yet UK chancellor Brown acts as though we are living in the mid 1960's. Where is the vision ? Where are the grand schemes and strategies to tackle the economic/social issues that this century will present to us ?

There was absolutely nothing in the Budget speech about the looming pensions crisis. Yes, there will be a serious lack of funds to support the growing elderly population from around 2020 onwards. Neither was there any mention of the energy problems that will arise once the current nuclear and Gas industry expire - in about 2025 and 2035 respectively. Sure, such events are far ahead of us, but they do need to be addressed by someone - sooner rather than later. I heard nothing in the speech to convince me that the current government have any new ideas. The current government came to power six years ago, ironically once they seized electoral power they did'nt really know what to do with themselves. Blair and friends seem to have spent all their energies on how they can secure the next election win in 2005/6, rather than tackle some of these difficult and pressing issues.

Anyway, why would I bother to write an article on the UK budget, if things are in my view admittedly  'relatively nice' ? Well for one thing, there remain some really stupid ways of collecting tax in this country. Over the last 15 years UK chancellors have tinkered with the usual taxes, and added a few new ones - such as the airport and insurance tax. Currently, in my view there are simply too many minor taxes, each of which costs a relative fortune in administering. Any tax collected should be fairly targeted, and only be via an efficient means. I despair at the increasing situation of new minor taxes/charges being applied. A classic is the congestion charge. It is a wildly inefficient means to raise revenue. A relatively small amount of the charge ends up as revenue to the GLA for investment in London's public transport infrastructure. The tax is in effect highly wasteful, and has created yet another mass of bureaucratic administration.
 

Tinkering with the Economy

For the last few decades, the annual Budget proposals have all been relatively uninspiring. There have been just a few interesting changes - particularly so in the Lawson years, when taxes were slashed at the top end of the scale. Broadly speaking though, Fiscal policy has remained largely stagnant, hardly anything has been altered in the post war era. It has neither made no difference whether the Conservatives or Labour (new labour as well as 'old') have been in control of matters. Economic policy has simply not changed all that much. The level of overall taxation as a percentage of GDP has remained remarkably consistent at around 35-45%.

As an onlooker, -as someone who chose not to vote for this government, I guess I could be pleasantly surprised at how well things turned out. Prior to 1997, the conservative government tried to scare everyone into saying the economy would collapse, employment would slump, and inflation would soar. To the pleasant surprise of (I think) most tory voters, things have been somewhat okay.


New Labour Overspending ?

Most people have not even the slightest idea of how much money the government actually spends on each of the main departments. The latest budget reaffirmed the spending totals outlined in the previous autumn. Projected spending for fiscal year 2003-04 is projected at £456 billion. 

Here we go with a little run down on how some of this money is spent. Social welfare payments in the forthcoming year will probably amount to some £133 billion, which represents 29% of the total budget. The health service will likely spend £72 billion in 2003-4, Education £59 billion, Law and Order £27 billion, and Defence £26 billion (data : Red book 2003).

Interestingly, the amount of debt interest paid to service the national debt has fallen quite a bit in the last few years since Labour came to power. Debt interest in 2003-04 is expected to be around £22.5 billion, having been reduced from £29.7 billion in fiscal yr 1997-98.
 

Taxes - where does the revenue really come from ?

No one likes to be taxed, but most of us agree that as a society some form of collective taxation is a useful way to fund things that benefit society as a whole (or maybe I am wrong on this general belief ? ). Anyway, most people will be surprised at just where the money is taxed.

Only 28.5% of revenue comes from 'income tax', the next biggest chunk comes from N.I. contributions (17.4%). Over the last few decades VAT (sales tax) has come to be a major revenue source for the Treasury. One other notable tax is that of tobacco, which brings in around 10-11 billion annually - and that is despite increasing illegal European imports.

Currently, the Chancellor is expecting that in this fiscal year 2003-04, the government will collect £428.3 billion in receipts - of which almost all comes from taxing the UK people. He is expecting to spend a total of £456 billion - leaving a shortfall of some £28 billion. This gap is mostly due to Brown's over-optimistic belief in the UK economy in last years budget.

So, Brown has 428 billion or so to play with. It may sound a lot, but some spending departments - particularly the Health Service and Welfare will suck up every pound available - and still ask for more.

It is important to note that although tax revenue increases (almost) every year, taxation levels overall have remained generally the same. Despite what all current political parties claim, each UK government -whether it be Labour/Tory have really not changed the overall level of taxation that much.  
 


Budget 2003 - The Highlights (or should that be lowlights? )

After trawling through the official Budget 2003 book released by the Treasury (called the 'Red Book', yes it is red in colour), here are the main points...

-Child Trust Fund: every newborn from Sept'02, has a fund set up in their name with between £250-500 being deposited (a one off payment, NOT annual) by the state. Cost : £350million

-Fuel allowance increase for over 80's, £100 annual payment to all households with someone over 80yrs. Cost : £180million

-Pensioners continue to receive their full social benefits for up to 52 weeks whilst in hospital (they used to be charged for food/accom. after a number of weeks of inpatient care)
Cost : £30 million

-Anti VAT fraud measures : hoped to raise £225million

-Fuel Duty frozen : -£300 million , although rates will increase if the oil price continues to fall, and world supply stabilises.

-Anti tax avoidance, income tax, foreign companies, aims to raise some £880 million in 2003-4

-Landfill tax, increasing cost to companies, raise £100million

-Increase in social fund budget : Cost £25 million

-Tobacco duties, increased in line with inflation - no effect.

see note 5.

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That don't impress me much

So those were the main changes this Budget. There were a fair number of other modifications in taxation policy, but of these most were essentially insignificant in their size/effect, and do not merit any mention.

Q. What do you think of those nine changes ? Do they inspire you ? Are you astounded with these changes ?

I do not believe you're thinking 'yes' right now, are you ?

With a total revenue of some £428 billion, Brown has tinkered will barely a billion pounds - that is barely a quarter of 1%. Such a small amount is meaningless in the grand scheme of things.

Brown called his budget 'Building a Britain of economic strength and social justice'. The simple fact is, nothing of any significance was changed. Neither did much change last year, - despite the marginal increases in taxation. The sad fact is that the status quo is maintained every single year. There is so much opportunity to change, simplify, and improve the overall tax/spending structure, yet UK chancellors have consistently failed to deliver.

I am tempted to spell out my own proposals for taxation/spending at this point, yet I shall leave that for another day.... you can wait.

According to the UK Treasury website, Budget 2003 was about 'Building a Britain of economic strength and social justice'. Well I agree that the economy will remain relatively strong - at least for the next few years, but as for 'social justice'. What the hell is 'social justice' supposed to mean ? Are they referring to their amazing £100 payment to households with someone over the age of 80 ? That measure will benefit very few, and £100 is very little in any case. Yet the current government continue to claim they are the party/government of social care, I don'nt think so, do you ? 

What astounds me even more is the utter lack of any 'Grand schemes' planned for the nation. Where are the great engineering projects, the new railway links, the new transport hubs ?

Perhaps the only notable government funded project of late has been the infamous 'Dome'. However, I don't count the 'millennium dome' as a 'grand project' - it was essentially a short term tourist attraction, poorly conceived, and lacking a strategic long term development plan. As testament to the current government's lack of vision, the structure has stood empty for over 2 years and remains essentially derelict.

Just think that more than a century ago the UK was being criss-crossed with railway lines, thousands of miles of lines linking almost every major area of population. A revolutionary 'underground' network of train lines were also under construction in the London metropolis. The scale of the construction was immense, it just seems to me that in those times the leadership of the United kingdom had a real vision. They knew what they wanted to build, and they damn well built it - no matter what the cost, or how difficult it might be in engineering terms to construct. Engineering is sadly the most neglected and overlooked sector in the UK. It seems to me that people too easily forget that almost everything we rely upon in everyday life, is due to the vision of the great engineers. I found it pleasing recently that 'Brunel' was voted runner up in the 'best of British people'. The UK needs a few new Brunels, a few visionary people to overhaul the current outdated transport network. If I seem to keep coming back to transport, that is because I see ability to travel as the most important issue for the UK in the early 21'st century.  

The really horrifying thing in my view is that not one of the current mainstream political parties have a single plan for any new transport networks. Despite the fact that they all agree the current road, rail, and air networks are already at full capacity, each party has failed to address the need for new capacity. Essentially, we are being told we will simply have to live with the current transport network for the foreseeable decades. Is this good enough ? Do the UK people really want to put up with this saturated transport network until 2050 or even beyond then ? 


How does the UK economy compare ?

I thought it would be interesting, as a side note to take a moment to compare the UK economy to the USA.

Yesterday (11/04/03)  the US Senate finally agreed to pass their 2003-04 budget. The US Budget for fiscal yr 2003-04 is targeted to be in the order of some $2.27 trillion. Yeah, that sure is some mighty large figure, even when you consider it is for the world's last remaining superpower. Note again the UK budget is for £456 billion ( $US 716 bn)

The USA has 4.8 times as many people as the UK, which would give the UK an equivalent budget of $3.4 trillion. The US budget is around a third less than what we would expect - at $2.27 trillion. It is interesting to note that although the UK spends 50% more in relative terms, actual GDP per capita is far higher in the USA (see note 7.)


Debt Ridden Economies ?

It is quite well agreed that the USA is a relatively low tax economy. However, the USA does have the most horrendous levels of state debt. The US national debt currently stands at $6.47 trillion. UK debt is £400.9 bn ( $629.4 bn dollars)
- which represents 38.6% of GDP (end. 2002). So the UK is actually in a very strong position compared to the US. This may well surprise many people, who do tend to think of the US as the stronger nation. On a per person basis, the British resident is far more financially sound than the average American.

Debt per person in the UK is in the region of £6500 ( $11,000). Lets get this quite clear, EVERY single person in the UK owes somewhere in the range of £6500. This compares to around £13000 for every American. The UK economy is in a far better position than the US economy, to survive any serious global problems. So, at least in terms of a debt burden, the UK is relatively fine.

 

Brown's Lack of Vision

Our dear Mr Brown in his sixth budget, delivered the UK population very little of note. There was nothing of any real substance, no grand plans, no vision at all. As many economists and commentators have noted, the Chancellor is now living on hope for 2003-04 and in the following 2 fiscal years. Brown has been over optimistic quite a bit lately.  He should have adapted his 2003-04 spending plans, but he did not. Instead of raising taxes and/or cutting back on his many spending pledges, he is gambling on a bumper 2004-5 in order to make up for the budget deficit of almost £30 billion a year. If the 2.5-3.5 % annual growth in the economy does not materialise, then there will be some structural problems for Browns successor to deal with. Any decent chancellor would have amended their budget to take account of such a budget gap, but no. Brown did not want his government to appear as the 'tax raising' government - even though that is what has happened over the last 2 years. It is somewhat shameful that yet another chancellor has put his party politics ahead of the UK economy. Browns reluctance to act now, may quite easily come back to haunt the Labour party at the time of the next general election in 2005/06.

Brown has failed the UK people. He has not addressed a number of the longer term issues. More than anything though, Chancellor Brown has not proposed a single visionary capital project in any of his six years as manager of the UK's finances.
Brown lacks vision, the UK deserves a lot better than last Wednesday's 59 minutes of un-inspirational spin filled speech.

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© 2003 Philip Calrissian
Last Updated : 25/03/04

World Population : 6.28 billion as at April 12 '03

US/World population clock
 

Related Websites

HM Treasury : The UK govt's finance dept.

National Statistics : Govt. site, providing main UK stats.

Budget 2003 : BBC.co.uk : summary
 
CIA 2002 Handbook : UK economic data

Related Articles

Budget 2003 : UK Treasury Budget Homepage

* Highly recommended, a single page that graphically depicts the 2003-4 receipts/spending plan for the UK.

*Budget 2003 : Graphical Summary : UK Treasury

UK National Debt : Summary chart on UK Govt debt.

USA National Debt clock : Watch the US debt pile up !

USA Debt history : US Treasury

 

UK Government Spending

2001-02 Spending outcome (confirmed data, released 10/02)
 

          *note : ( 1997-98 : 29.7 bn)
          All data : see HM Treasury

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UK Govt Capital Investment

Total Capital budget 2001-02 : 23.7 bn.

Main sectors of note...
 

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UK Government Income

2003-04 Fiscal yr (projected revenue)

Total Income :  £428.3 billion

* 1 billion = 1,000,000,000,  i.e 1000 million

Inland revenue (55.1%)

Income Tax : 28.5 %
Corporation Tax : 7.2%
Social Security (N.I contrib) :17.4%
Other inland rev : 2.0% 

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Customs and Excise (26.4%)

VAT (sales tax) : 15.5%
Fuel Duty : 5.4%
Other customs/excise taxes : 5.5%

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Other taxes : 8.6%

Business rates : 4.3%
Council Tax : 4.3%
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Other govt. Receipts  : 9.8%

* note, totals do not add up to 100, due to rounding.







 

Notes on Economic Data.

1. All government projections are relatively accurate, although that depends if you consider a plus or minus range of around 10 billion a relatively 'good educated guess'. Usually, govt. spending is quite close to what is intended. What remains difficult to predict are revenue receipts - primarily income tax and VAT. Both of these types of tax revenue are somewhat variable, and are very much dependent on the overall state of the economy.

2. UK Budget GDP forecast 2003-04 : 2.0 to 2.5 % growth.
                                            2004-05 : 3.0 to 3.5 % growth.    

It is interesting to note that Brown has maintained his 'hope' that the UK economy will be storming ahead in 2004. If this level of growth does not occur, then quite a problematic spending/revenue gap will occur. The chancellor is banking on a strong 2004, if this fails to be the case, then some serious decisions in raising tax and/or restraining spending will need to be taken.

3. All Data Sourced : HM Treasury : 'Red Book', April 9' 2003
 

4. National debt.
    UK debt : £400.9 bn ( $629.4 bn)
    USA debt : $6.47 trillion

*note : 1 Trillion is 1,000,000,000,000

I have always wondered who we owe all this money too ? So far I have not actually found out who we have been borrowing from over the last century. It can not  be the old USSR, neither can it be any nation from either the African or South American Continent.
That leaves the far east, the middle east, and Oceania - huh? Seriously, I am quite confused as to who all this money is owed too, any ideas, please mail me !
 

5. The change totals noted are for fiscal year 2003-04, and are the indexed changes. For instance, although actual £ revenue has increased by £170 million, this is offset 100% by inflation.

Most changes will cost less in the following fiscal years. For example, the fuel allowance payment of £100 will be worth less next year - unless they index link it to inflation - which is HIGHLY unlikely. This is a classic, what was once a seemingly nice social benefit is left to be eroded by inflation over the following 7-12 years. Unlike standard welfare payments, these fixed sums - such as the winter fuel allowance, are generally allowed to lose their original value as inflation erodes their value.

6. UK-USA comparison

USA est. pop : 290.7 million
UK est. pop : 60.5 million (approx)

UK-US pop. factor of 4.8 times.
Current £-$ rate of 1.57
UK expenditure 2003/04 budget of £456 bn ( $ 716 billion)

Debt (per person) UK: £6500  ( $11,000) approx.
                                        USA : $22,300 approx

If the all things were equal comparing to population (x4.8), UK would have $3.0 trillion of debt. Since America has a national debt of some 6.47 trillion, we can be quite secure in saying that on a per person basis, the UK is the financially more balanced nation.

7. GDP per capita*

* This figure represents the average amount of 'work' in value terms produced by each citizen on a nation in a given period -usually per year.

UK: $25,300 (2002 est.)
USA : $36,300 (2001 est) - the largest production per person in the world.

So, you could say that the average American person produces almost 50% more per year than the average UK worker.