British budget follows the 'steady-as-she-goes' formula

Analysis: Gordon Brown did little to anger the public, writes Cliff Taylor, Economics Editor

Tight public finances make for rather dull budgets. The last two Irish budgets have featured little excitement and yesterday the British chancellor, Mr Gordon Brown, also had to revert to the "steady-as-she-goes" formula.

Weak tax revenues have left little in the kitty and it remains to be seen whether the commitment to allocate more to key public services, while at the same time slowing overall spending growth, can be met. Experience here, and across the industrialised world, is that achieving more efficiency in public spending is a slow and difficult process.

In what is likely to be the penultimate British budget before the next general election, Mr Brown did little to ire the public - with the exception of civil servants, who are up in arms about plans to cut their numbers by 40,000, or 10 per cent. Interestingly, the Labour government is also promising to "decentralise" 20,000 civil servants to the regions,

Rising borrowing was allowed to take the strain, with a borrowing requirement of 3.4 per cent set for this year. Mr Brown's "golden rule" - that, on average, over the economic cycle he would only borrow to fund investment - is under pressure.

By comparison Charlie McCreevy is positively miserly, with a borrowing requirement of around 2 per cent and a strong current Budget surplus.

Not being a member of the euro zone, Mr Brown is not, of course, constrained by the Maastricht 3 per cent borrowing limit. And the issue of British membership of the euro zone is clearly on the back burner. The Treasury will examine the issue before the next budget, Mr Brown said, but it is clear that a referendum will not come until after the next election - if it comes at all.

Whatever the Treasury "tests" to determine whether Britain is ready for membership, it is clear that, politically, the Labour government, struggling to regain public confidence on a number of fronts, has parked the euro issue.Instead, the election campaign will be fought on the basis of domestic economic management.

Market forecasters believe that Mr Brown is being optimistic in his borrowing forecasts and particularly on estimates for revenue growth - hence the Conservative charge that a vote for Labour is a vote for higher taxes. And the slowdown in spending growth - from 5 per cent to a target of 2.5 per cent in future - is bound to take its toll on services.

Mr Brown is following the McCreevy formula of trying to achieve savings by cutting public sector numbers, while promising to maintain spending on "front-line" service provision in key areas such as health and education. Politically this may be sensible in the short term, but it may leave the Labour government vulnerable to charges of mismanagement if services suffer.

There is consensus that Mr Brown's forecasts for UK GDP growth of 3-3.5 per cent this year and up to 3 per cent next year are reasonable. As the UK remains our single biggest export market - accounting for more than one-fifth of exports - this is good news for Irish companies.

With the US economy growing at a steady clip, the euro zone remains our one key market where growth is very sluggish.