THE GUARDIAN

LEADER

Saturday January 29, 2005

It is typical of Britain's insatiable appetite for bad news that, at a time when practically everything else in the economy is going well, pundits concentrate on the one thing that is not: public borrowing. The Institute for Fiscal Studies' warning that Gordon Brown faced an extra budget deficit of £11bn (with the threat of higher taxes to finance it) managed to crowd out other economic news this week. This included record numbers in employment, high wages growth, continued low inflation and unemployment - and the fact that the UK economy has now been expanding without interruptions for 50 successive quarters. For anyone brought up in the stop-go atmosphere of postwar economic policy - in which expansions followed by recessions were an ingrained feature - this is truly amazing. The Conservatives can rightly take some of the early credit but most must go to a chancellor whose fiscal disciplines and decision to grant independence to the Bank of England have transformed the economic competence of the Labour party in the public mind.

Few believed Mr Brown in opposition when he promised to abolish stop-go since this was like a religious movement claiming to abolish sin. But abolish it he has - for the moment. Whereas the previous Conservative administration had two recessions (defined as two successive quarters of negative growth) in the same decade, Labour has so far suffered none. The chancellor's spending predictions have been over-optimistic, but he has confounded his critics on growth - most recently this week when new GDP figures revealed unexpectedly strong growth of 3.1% in the fourth quarter of 2004. This was in line with the March budget forecast (3% to 3.5%) and only slightly less than the 3.25% of December.

Mr Brown's problem is that impressive growth is not generating the tax revenues he had expected. All is not lost yet. The treasury is hoping that the start of the tax gathering season plus a spurt of delayed corporation taxes arising from higher oil prices will lower the overrun and enable the chancellor to meet his golden rule of balancing the budget over the cycle for all spending except investment. If that does not happen, Mr Brown will have to suffer a dent to his reputation for competence, but it would not be a national or an economic tragedy. Just look at Germany, which for decades was a role model for the UK economy. This week the Berlin government admitted that unemployment would reach 5 million next month for the first time for 60 years. Problems on that scale help to put Britain's into perspective.